Annual Report 2007 by Joachim Granath

Annual Report 2007

CO N T EN T S

1 2007 in summary 2 CEO’s statement 4 Business concept, vision, goals and strategy 6 The Broström brand 9 A day with Broström 10 Operations 10 Business offer 13

Market conditions

Competitors

Market and business development

Broström Ship Agency Network

Broström’s partners

25 Employees 28 The fleet 30 Quality, safety and the environment 33 IT 34 Several-year overview 37 Broström’s shares

Acquisitions, partnerships and Asian expansion In 2007 Broström continued its expansion in Asia. Through acquisitions and newbuildings, the fleet in the region increased from nine to 22 vessels. At the same time, Broström strengthened its positions in European and Atlantic traffic. Among more noteworthy events during the year: •

ew, strategic partnership with the German shipowner N Reederei Claus-Peter Offen, covering eight 37,000 dwt chemical product tankers, which will be delivered in 2008.

•

cquisition of Petroships Group in Singapore. The acquiA sition included nine small and intermediate-size product tankers, which complement Broström’s existing large tonnage in Asia.

•

elivery of four large tankers owned by Broström’s partner D Dünya, for traffic in Asia.

•

Acquisition of two small product carriers for European traffic together with the partner Erik Thun.

•

xtensive upgrades of two vessels for safer, more efficient E transports of ethanol and methanol over the Atlantic.

•

ale of Broström’s 50% stake in the shipbrokerage Percy S Tham i Oxelösund AB.

40 Share data 41 Key ratios 42 Risk factors and sensitivity analysis 45 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 58 Accounting and valuation principles 64 Notes 74 Proposed appropriation of profits 75 Auditors’ report 76 Corporate governance report 82 The Board’s report 83 Supervisory Committee 84 Board of Directors 86 Addresses 87 Glossary Cover photo: Malin Persson, Chief Officer onboard the BRO DESIGNER.

Broström in three minutes Why Broström?

What is Broström’s offer?

Globalisation of the oil and chemical industry has led to

Broström offers efficient, flexible marine logistics services

fewer – but larger – companies, and logistics have become

for the global oil and chemical industry. Broström’s services

an increasingly critical factor. Previously, for example, oil

involve transports of refined oil products, such as gasoline,

companies typically had a local base, with large national

diesel and heating oil, as well as chemicals such as metha-

depots of refined oil products. One of the driving forces

nol, ethanol and MTBE. Transports are often integrated

behind restructuring in the industry has been the ambition

in the customers’ distribution chains and are made from

to reduce tied-up capital by keeping oil stocks in motion on

refineries to depots as well as between depots.

the world’s seas according to a pronounced “just-in-time” strategy.

In recent years, demands on shipping have grown consid-

erably with respect to quality, safety and the environment. As a result, many older vessels today are no longer considered for assignments by increasingly mindful customers or in waters with particularly stringent environmental and safety standards. These trends, along with higher capacity utilisation of the world’s refineries, have led to a heightened sensitivity to sudden disruptions caused by production stops or bad weather, for example. Broström is making a concerted effort to meet the industry’s need for safe and reliable logistics services.

Read more on page 15

the relationship between supply and demand in transport capacity. Since individual operators have limited opportunities to influence prices, efficient employment of the fleet is Broström’s primary means of enhancing its profitability. Here the company’s strategic focus on contracts of affreightment plays a critical role, since it affords greater opportunities for planning and thereby minimises ballast voyages. Cargo handling in ports is also highly significant, especially in segments with short transport distances and

Financial calendar 2008 29 April Annual General Meeting, 5 p.m., Lorensbergsteatern, Göteborg1) 29 April Q1 interim report 27 August Q2 interim report 6 November Q3 interim report 1)

The Board proposes a dividend of SEK 3.00 per share for 2007. For more inform., visit www.brostrom.com.

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Sales and profit Broström’s net sales increased by SEK 118 m in 2007. Taking divested operations into account, the increase was SEK 214 m.

20 07 I N SU M M A RY

SEK m

Net sales

2007

2006

2005

3,504.0

3,386.1

3,818.1

Operating profit (EBIT)

663.6

771.7

812.4

Profit after net financial items

450.4

579.8

720.1

Net profit Investments

426.5

503.0

622.9

1,082.1

1,687.5

1,620.0

Cash flow from operating activities

745.9

853.7

619.3

Disposable liquidity

993.4

1,109.7

1,294.9

Return on capital employed. %

9.8

11.3

15.9

Equity/assets ratio II, %

30.9

35.0

37.2

Net profit per share, SEK

6.50

7.57

9.45

Net profit per share after dilution, SEK

6.50

7.57

9.38

11.55

13.05

9.58

3.00

4.00

Cash flow from operating activities per share, SEK Dividend (proposed by the Board), SEK

Starting in 2007, BrostrĂśm no longer breaks down its reporting into different operations areas, since the companies that made up the Marine & Logistics Services operations area were sold in 2005 and 2006. A breakdown into operations areas is therefore no longer relevant.

â&#x20AC;˘â&#x20AC;&#x201A; BrostrĂśm achieved its return targets in a highly volatile freight market, where most of the second half-year was â&#x20AC;˘â&#x20AC;&#x201A; characterised by a deep and prolonged downturn in the spot market. â&#x20AC;˘â&#x20AC;&#x201A; Net sales rose 3% to SEK 3,504 m. â&#x20AC;˘â&#x20AC;&#x201A; Operating profit was SEK 664 m, corresponding to an operating margin of 18.9%. â&#x20AC;˘â&#x20AC;&#x201A; Profit after net financial items was SEK 450 m. â&#x20AC;˘â&#x20AC;&#x201A; Disposable liquidity was SEK 993 m. â&#x20AC;˘â&#x20AC;&#x201A; The return on capital employed was 9.8%. â&#x20AC;˘â&#x20AC;&#x201A; The equity/assets ratio II was 30.9%. â&#x20AC;˘â&#x20AC;&#x201A; The Board proposes a dividend of SEK 3.00 per share.

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Disposable liquidity and cash flow

Profit after net financial items

BrostrĂśmâ&#x20AC;&#x2122;s high level of disposable liquidity gives the company freedom to act in connection with consolidation in the market.

BrostrĂśmâ&#x20AC;&#x2122;s earnings were hurt by the weak market during the second half of 2007.

C EO ’ S statement

Third step of our Asia strategy in place In 2007 we completed the third step of our Asia strategy. Twenty-five per cent of the fleet is now operating in the fast-growing Asian market. And once again we achieved earnings in accordance with our return target – in a market characterised by high volatility and which performed very weakly during the second half of the year. The long-term market trend in Broström’s business segment is favourable.

In 2007 Broström seriously consolidated its position as a lead-

we have had is also enabling various economies of scale, and

ing player also in Asia. A year ago we said that over time we

to take advantage of these in the best way possible, starting in

would be doubling our fleet in the region. As it turned out,

2008 we have adopted a functional Group organisation. The

before the year was over we had increased our fleet from nine

aims are to fully capitalise on the synergies that exist in our

to 22 vessels in the region. This major step – the third in our

global organisation, to enable more efficient handling of our

Asia strategy – became a reality when we acquired Petro-

total business, and to effectively continue our work on building

ships Group in Singapore, which operated nine small and

the Broström brand.

intermediate product tankers. It was a strategically significant

The new organisation also creates opportunities for our

acquisition which entails that we have now also established a

employees, who are gaining access to a much larger professional

presence in the small tonnage segment in Asia. We decided on

network. I think this can be an advantage for Broström in the

Petroships Group because they worked according to a strategy

intensifying competition for competence both at sea and ashore.

that was similar to our own, and we had a shared view of the future development potential in our business segments. Petroships Group is now Broström Tankers Singapore, and its operations are fully integrated with the Broström Group.

Volatile market – again Just like we reported a year ago, 2007 was characterised by a highly volatile spot market. This was without any traditional

Since completing the acquisition we have continued our

disruptions, such as hurricanes, political crises or difficult ice

expansion in the small size segment in Asia that we have been

conditions. Instead, it was rising oil prices along with anticipa-

seeking. One vessel that we previously operated in Europe is

tions of falling oil prices and the US mortgage lending crisis

now employed in our Asian traffic, and another vessel is in line.

that were behind the relatively prolonged downturn during the

This is being made possible by a number of newbuildings for

second half of the year.

European traffic that will be joining our fleet.

In short, the decline was due to forecasts made by market watchers for an impending drop in the price of oil. When

Strong expansion in Europe

the price instead continued to climb, oil traders and others

In Europe we and our partners took delivery of an additional

became less willing to buy oil in anticipation of a price decline.

three vessels in 2007, and in 2008 the fleet will be expanding

Under pressure from anxiety in the financial markets and

strongly. Among other things, we will be taking delivery of

fed with information pointing to an imminent drop in the

four 17,000 dwt vessels ordered together with Dünya.

price of oil, banks also became less willing to lend money to

trading operations.

However, the greatest expansion will be taking place in

our larger (37,000 dwt) segment, where our German partner

Aside from this demand-steered decline, low refinery

Claus-Peter Offen is awaiting delivery of eight new vessels

margins also contributed to supply-related restraint. Together

that we will be operating commercially. This will double our

these factors had a strongly negative impact on demand for

capacity in this sub-segment. It goes without saying that such

transports of oil products during the second half of 2007.

an expansion will enable us to further develop our service for our customers and at the same time work more efficiently.

We achieved our return target For Broström, the market decline during the autumn put

New organisation

pressure on both net sales and earnings. Sales increased to SEK

The fact that we have an established operation in Asia that is

3,504 m, while profit after net financial items fell to SEK 450 m.

similar to our European operation is yet another milestone in Broström’s development. The long period of expansion that

With a return on capital employed of 9.8%, we once again exceeded our long-term target. This shows the strength of

Broström’s business. The proposed dividend of SEK 3 per

fleet in Broström’s segments is still advanced in years, with a

share corresponds to 46% of 2007 net profit and is in line with

large share of single-hulled tankers that will not live up to the

our dividend policy, which is to pay a dividend that is equal to

IMO’s requirement for double-hulled tonnage, which takes full

40%-50% of net profit.

effect in 2010. Another challenge is the intensifying competi-

Market in continued growth

the rising demands on quality, safety and the environment.

tion for competent employees, while yet another is posed by Looking at the future, we can see continued growth in oil

However, from Broström’s perspective, it feels like we are well

consumption, but also a market characterised by considerable

equipped ahead of all these challenges.

volatility. According to IEA forecasts, underlying growth

Leadership in quality, safety and the environment is one of

in consumption of oil products is expected to be around 2%

Broström’s strong points. We have worked with these issues

for 2008.

throughout the years and are recognised as a leading, quality

Rising consumption is closely related to the overall positive

operator. In 2007 we took the initiative to further strengthen

development in the world. The situation is improving for more

co-operation with our partners when we held our first joint

and more people in a growing number of countries. Underly-

quality conference. Events like these benefit us as well as our

ing all growth in prosperity is access to energy, where oil will

partners. I am convinced that we can all learn a great deal from

continue to be a significant source in the foreseeable future,

each other and thus grow even better together. Our work in this

especially in the important transport sector.

area creates a hotbed for co-operation also in other areas – all in

Broström plays a central role in this development and is a

line with our brand promise: “Going for Excellence. Together.”

vital link in the logistics chain. In addition to rising demand for oil products, changing consumption patterns and geo-

Thanks

graphic shifts in refinery locations are giving rise to more and

I am confident that we are well-equipped to take on further

longer transports. Consequently, demand for shipments of oil

opportunities and challenges together. But before we move on,

products in Broström’s segments is expected to rise by roughly

I would like to express my heartfelt gratitude to our employees,

three times the underlying increase in oil consumption. The

customers, business partners and shareholders, who have all

size of our fleet, where we have now achieved critical mass, is a

contributed to our development and for the trust you instil

substantial competitive advantage in this context and enables

in us. I look forward to yet another year together. Many warm

us to offer flexible transports at the same time that we achieve

thanks!

effective utilisation of our transport apparatus. Well-positioned for coming challenges Both Broström and the industry as a whole face a number of challenges. The shipyards’ orderbooks remain well-filled, which means that a large volume of new tonnage is scheduled for delivery in the coming years. At the same time, the global

Lennart Simonsson Managing Director and CEO

BUSINESS CONCEPT, VISION, GOALS AND STRATEGY

Strategy for expansion through increased customer benefit Broström continued its strategic expansion in Asia in 2007 while consolidating its market-leading position in Europe. This means that Broström can now further improve the service it provides its customers.

Business concept

(including partners). The levels are based on the anticipated con-

Broström offers competitive logistics solutions to customers

tinued need for consolidation in product and chemical tanker ship-

in the oil and chemical industry, focusing on industrial tanker

ping. In pace with consolidation in the oil and chemical industry,

shipping and marine services.

companies are increasingly outsourcing services such as logistics to external partners. At the same time, oil and chemical companies

Vision

are growing larger and becoming increasingly global, which puts

Broström will be recognised as the most attractive provider of

similar demands on their suppliers.

logistics services based on performance, reliability and respect.

The return target is related to the general trend in interest rates. Consequently, the target coincides with the trend for alternative

Financial targets Growth • Average annual growth in net sales of 10% over a three-year period

capital investments. The equity/assets ratio target is based on what Broström believes it needs to maintain financial stability and freedom to manoeuvre during periods of growth and expansion.

• Average annual growth in commercial activity (measured as net sales including partners) of 20% over a three-year period 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 2007 this corresponded to a return target of 9.4%. The target for 2008 is 9.6%. Equity/assets ratio • Equity/assets ratio II in excess of 30%

Strategy • Broström will lead the development of logistics solutions primarily for the oil and chemical industry by meeting its customers’ service needs. • Broström will grow through larger contract volumes, new market penetration and company acquisitions. • Broström will be a leader in quality, safety and the environment. • Broström’s production will be cost-effective and continuously improved. • Broström will develop improved logistics solutions for its

Through its two-pronged growth target, a set growth objective has been established for Broström’s entire business offer

customers through its strategic alliance with Vopak.

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Return on capital employed

Equity/assets ratio II

During the last five years BrostrĂśm has had an average return on capital employed of 10.9%.

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

Strategic follow-up 2007

During the year, BrostrĂśm also consolidated its strong position

With the acquisition of Petroships Group in Singapore in

as a leading quality operator. In pace with modernisation of the

2007, BrostrĂśm complemented its offer in Asia to also include

fleet, extensive training activities continued in the area of quality,

the small and intermediate-size tonnage segment. At the same

safety and the environment â&#x20AC;&#x201C; both internally at BrostrĂśm and in

time, four large vessels were added to the Asian fleet through

co-operation with the companyâ&#x20AC;&#x2122;s partners.

co-operation with the Turkish partner DĂźnya. The acquisition

Internally, work was characterised by continued business devel-

and delivery of the new vessels also created opportunities for

opment. Starting in 2008, BrostrĂśm has a new, functional-based

BrostrĂśm to expand its business in Asia with existing as well as

organisation which is aimed at creating further improvements in

new customers.

efficiency and better customer service. The Group-wide brand

In European traffic, BrostrĂśm established a partnership

project continued.

with the German company Reederi Claus-Peter Offen, covering eight 37,000 dwt product chemical tankers which will join

Focus 2008

BrostrĂśmâ&#x20AC;&#x2122;s commercial fleet in pace with their delivery from

In 2008 BrostrĂśm intends to:

the shipyard in 2008. Through this partnership BrostrĂśm is

â&#x20AC;˘â&#x20AC;&#x201A; further develop operations in small and intermediate tonnage in

strengthening its position in the large size segment in European traffic. During the year, the first two of six intermediate product tankers that were ordered together with the Turkish company DĂźnya were delivered. In Atlantic traffic, BrostrĂśm initiated a major upgrade programme for existing vessels in the aim of preparing them for new rules governing transports of vegetable oils and chemicals. The combined growth in the fleet in 2007 also led to greater flexibility and efficiency in fleet operations, thereby creating conditions for continued higher contract volumes in all of BrostrĂśmâ&#x20AC;&#x2122;s markets.

Europe, â&#x20AC;˘â&#x20AC;&#x201A; continue growing in the large tonnage segment in Europe by taking delivery of an additional eight vessels, â&#x20AC;˘â&#x20AC;&#x201A; continue growing and meeting higher demand for the companyâ&#x20AC;&#x2122;s services in Asia in pace with higher business volume, â&#x20AC;˘â&#x20AC;&#x201A; initiate new partnerships and carry out new acquisitions, and thereby continue to actively participate in market consolidation, â&#x20AC;˘â&#x20AC;&#x201A; develop economies of scale through continued improvements in cost-effectiveness and greater capacity utilisation of the fleet, â&#x20AC;˘â&#x20AC;&#x201A; continue building the BrostrĂśm brand.

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Growth BrostrĂśm target is to achieve average annual growth in net sales of 10% over a three-year period.

T H E B RO S T RÖ M B R A N D

One company, one brand Broström’s brand-building activities continued in 2007. This work was characterised above all by an ambition to create a solid brand platform internally and make it possible for individual employees to “live the brand” in their daily work. Times change. From having principally had national oil and

single, clearly defined brand that covers all operations helps in

chemical companies as its primary customers, Broström has

the work on creating a singe, cohesive company.

refined its “just-in-time” work strategy and now focuses on providing value-added for major global customers. This development requires a dedicated organisation and

Building blocks of the Broström brand In the course of the branding process, Broström has formu-

customer relations that are based on credibility and mutual

lated a vision that creates a clear course on where the company

trust. Broström is a business partner for its customers, and

is headed in the future (see page 4).

success for them means success for Broström. This is one of

Broström’s three core values – Reliability, Respect and Ex-

the key reasons for the company’s work on building the brand

cellence in Performance – express what the company believes

– the heart and soul of Broström.

in and values. These core values make up the essence of the company’s culture – that is, “how we act in our company”.

Good reasons for brand work

Finally, Broström’s brand promise – “Going for Excellence.

Strategic brand development has been a vital objective for

Together” – succinctly describes the company’s undertak-

most companies in recent years, which have realised that their

ing vis-à-vis its customers. The brand promise is Broström’s

partners and customers prefer to do business with well known

hallmark and what distinguishes the company from its com-

companies that have a good reputation and a positive image.

petitors – it represents an attitude and way of thinking that

The Broström brand grows stronger through every contact

permeates the daily work of every Broström employee.

we have with customers, partners, owners and the operating environment. The brand also serves as the centrepiece of the

Ongoing process

company culture and a host of internal activities. These are a

During 2007 a platform and strategy for the Broström brand

few of the reasons why branding work is so important. More-

were put in place, and the work on getting this to take root

over, promoting a strong brand has other, obvious benefits,

internally within the organisation is in full swing. Once this is

such as in recruitment processes.

accomplished the process will enter its next phase. Within the company there is now a growing understanding of the brand’s

One Broström

significance, thanks in large part to the local brand ambassa-

A prime objective is that Broström will be perceived and act

dors, but a lot remains to be done. During the year, a long-term

as a single company – internally as well as externally. Where

action plan was drawn up for the continued brand-building

ever they may be in the world, our customers and partners

work – an action plan largely based on suggestions from local

should know what they can expect from Broström. Employees

branding discussions. A number of practical, brand-building

at every Broström office share the same values and attitudes,

tools along with marketing and promotional material have also

and they work according to a shared brand promise. Having a

been produced. And the work goes on....

In a queue from Göteborg to Hamburg On 9 January 2008 Broström’s vessels were loaded with 1.2 million tonnes of oil or chemical products, corresponding to 64% of the fleet’s combined cargo capacity. Transportation of the same volume by land would have required 27,945 tanker trucks, which lined up end-to-end, would stretch 650 kilo-

15 11

metres. This is the distance they would be queued up from

Broström’s head offices in Göteborg to Hamburg, Germany.

On that same day, the companies in the Broström Ship Agency Network cleared 12 vessels.

37-43

45 44

North Atlanti Atlantic ic

North Pacific Ocean

29,30 24-28

19-22

17,18

46,47

6,7

16 31-32

33,34

52-53

64 62

South Pacific Ocean South Atlantic

Focus on global market

3 4 5

85-86

83 82

81 79 78

70-77

Indian Ocean

A DAY W I T H B RO S T RÖ M

Europe 1. ALSTERSTERN Loading fuel oil in St Petersburg, Russia, for discharging in Lorient, France. 2. NORDIC SWAN En route from Ventspils, Latvia, to St Petersburg, Russia, with fuel oil.

24. EVINCO Loading high-sulphur fuel oil in Port Jerome, France, for discharging in Rotterdam, Netherlands. 25. BRO SINCERO Loading fuel oil in Port Jerome, France, for discharging in Göteborg.

3. WEICHSELSTERN En route from Ventspils, Latvia, to Bordeaux, France, to load low-sulphur diesel.

26. PROSPERO Waiting to discharge fuel oil and lowsulphur diesel in Le Havre, France, loaded in Grangemouth, England.

4. BRO ELLEN En route from Ventspils, Latvia, to Hamburg, Germany, with fuel oil.

27. BRO ANTON En route from Milford Haven, Wales, to Le Havre, France, to discharge naphtha.

5. GREAT SWAN En route from Rouen, France, to Ventspils, Latvia, to load fuel oil.

28. FURE STAR Waiting for travel orders outside Le Havre, France.

6. BRO GLORY Loading fuel oil in Kalundborg, Denmark, for discharging in Malmö.

29. BRO GOTHIA Waiting to load fuel oil in Coryton, England, for discharging in Rotterdam, Netherlands.

7. BRO GRACE Loading fuel oil in Kalundborg, Denmark, for discharging in Malmö. 8. BRO GOLIATH Discharging fuel oil in Copenhagen, Denmark, loaded in Liepaja, Latvia. 9. VINGA HELENA En route to Rotterdam, Netherlands, via the Kiel channel, to load shale oil in Kunda, Estonia. 10. ISARSTERN En route to Slagen, Norway, to load gasoline and fuel oil for discharging in Dublin, Ireland. 11. BRO GENIUS Loading unleaded gasoline in Mongstad, Norway, for discharging in Halmstad, Sweden. 12. NANNY En route from Eastham, England, to Göteborg with fuel oil. 13. FURENÄS En route from Grangemouth, Scotland, to load heavy fuel oil in Hamburg, Germany. 14. RHEINSTERN Waiting for travel orders outside Bremen, Germany. 15. BRO GLOBE Discharging fuel oil in the Faeroe Islands, loaded in Mongstad, Norway. 16. FIONA SWAN En route to a shipyard in Rotterdam, Netherlands. 17. NAVIGO Loading low-sulphur diesel in Amsterdam, Netherlands, for discharging in Thames, England.

30. BRO ELLIOT Waiting to discharge fuel oil in Coryton, England, loaded in Ventspils, Latvia. 31. BRO AXEL Loading naphtha in Stanlow, England, for discharging in Rotterdam, Netherlands. 32. GAN-SWORD Discharging diesel and gasoline in Tees, England, loaded in Brofjorden, Sweden. 33. BRO DESIGNER Loading naphtha in Grangemouth, Scotland, for discharging in Rotterdam, Netherlands. 34. BRO ATLAND Waiting to load condensate in Braefoot Bay, Scotland, for discharging in Rotterdam, Netherlands. 35. BRO DISTRIBUTOR Discharging low-sulphur gasoline, diesel, kerosene and jet fuel in Belfast, Northern Ireland, loaded in Rotterdam, Netherlands. 36. BRO DEVELOPER Discharging low-sulphur diesel, gasoline, jet fuel, kerosene and fuel oil in Whitegate, Ireland, loaded in Pembroke, Wales. 37. FURE NORD En route from Grangemouth, Scotland, to Pembroke, Wales, with low-sulphur diesel. 38. RAMONA Waiting to load fuel oil in Pembroke, Wales, for discharging in Cardiff, Wales. 39. BRO DELIVERER Loading benzene in Pembroke, Wales, for discharging in Tees, England.

18. HAVELSTERN Waiting to load low-sulphur diesel in Amsterdam, Netherlands, for discharging in Thames, England.

40. BRO GRANITE Loading low-sulphur diesel in Pembroke, Wales, for discharging in Plymouth, England.

19. BRO PREMIUM Discharging gasoline components and methanol in Rotterdam, Netherlands, loaded in José, Venezuela.

41. BRO GRATITUDE Loading distillate in Milford Haven, Wales, for freight within the harbour.

20. BRO PRIORITY Discharging methanol in Rotterdam, Netherlands, loaded in José, Venezuela. 21. FURE WEST Discharging condensate in Rotterdam, Netherlands, loaded in Grangemouth, Scotland. 22. BRO JUNO Loading fuel oil in Rotterdam, Netherlands, for discharging in Ponta Delgada, in the Azores, Portugal. 23. THEMSESTERN Waiting for travel orders outside Antwerp, Belgium.

42. BRO GEMINI Loading jet fuel, fuel oil and low-sulphur diesel in Pembroke, Wales, for discharg ing in Dublin, Ireland. 43. BRO GALAXY Discharging gasoline in Thames, England, loaded in Brunsbüttel, Germany. 44. EURO SWAN En route from Stanlow, England, to Rotterdam, Netherlands, with naphtha. 45. BRO JUPITER Loading fuel oil in Fawley, England, for discharging in Foynes, Ireland.

46. WOLGASTERN Waiting for travel orders outside Brest, France. 47. TRAVESTERN Waiting to discharge low-sulphur fuel oil in Donges, France, loaded in Antwerp, Belgium. 48. RHONESTERN En route from Algeciras, Spain, to Dunkirk, France, with naphtha. 49. BRO ERIN En route from Ventspils, Latvia, to Bilbao, Spain, with fuel oil. 50. FURE SUN Discharging fuel oil in Lisbon, Portugal, loaded in Leixoes, Portugal. 51. DONAUSTERN Waiting to discharge heavy fuel oil in Sines, Portugal, loaded in Fawley, England. 52. BRO ERIK Waiting to discharge fuel oil in Tarragona, Spain, loaded in Santa Panagia, Italy. 53. GAN-OCEAN Loading benzene in Tarragona, Spain, for discharge in Rostock, Germany. 54. BRO EDGAR En route to Lavera, France, from Skikda, Algeria, with naphtha. 55. BRO EDWARD En route from Skikda, Algeria, to load naphtha for discharging in Tarragona, Spain. 56. BRO ETIENNE En route to Alexandria, Egypt to load naphtha for discharging in Rotterdam, Netherlands. Atlantic 57. BRO ELIZABETH En route to Dakar, Senegal, with fuel oil and jet fuel, loaded in Hamburg, Germany and Rotterdam, Netherlands. 58. VEGA SPIRIT En route from Houston, USA to Tekirdag, Turkey, with gasoline components. 59. VEGA SPRING En route from Beaumont, USA, to Rotterdam, Netherlands, with gasoline components. 60. VOYAGER A En route from José, Venezuela, to New York, USA, with methanol. 61. BRO PROMOTION Loading gasoline and diesel in St Croix, US Virgin Islands, for discharging in New Haven, USA.

Asia 65. BRO CECILE En route to Sikka, India, to load fuel oil for discharge in Durban, South Africa. 66. CILAOS En route to Singapore to load gasoline, fuel oil and jet fuel for discharging in Le Port, La Reunion. 67. GAN-SURE Discharging unleaded gasoline and diesel in Kwinana, Australia, loaded in Singapore. 68. BRO CAROLINE Discharging diesel and unleaded gasoline in Adelaide, Australia, loaded in Singapore. 69. BRO ALBERT Discharging gasoline in Brisbane, Australia, loaded in Singapore. 70. BRO COMBO In dry dock at a shipyard in Singapore. 71. BRO CONCORD In dry dock at a shipyard in Singapore. 72. PETRO OPTI Waiting to load lubrication oil in Singapore, for freight between terminals in Singapore. 73. PETRO VENTURE Loading unleaded gasoline in Singapore, for discharge in Port Kelang, Malaysia. 74. PETRO EASKEM Waiting to load lubrication oil in Singapore, for freight between terminals in Singapore. 75. GAN-VOYAGER Loading fuel oil and jet fuel in Singapore, for discharging in Hong Kong, China. 76. GAN-SPIRIT Loading jet fuel, diesel and unleaded gasoline in Singapore, for discharging in Melbourne and Adelaide, Australia. 77. BRO CHARLOTTE Discharging gasoline and reformate in Singapore, loaded in Chiba, Japan, and Bataan, Philippines. 78. PETRO VARIO En route from Singapore to Port Kelang, Malaysia, with diesel. 79. PETRO FOREMOST Loading diesel in Port Dickson, Malaysia, for discharging in Pasir Gudang and Bagan Luar, Malaysia. 80. BRO JOINVILLE En route to Port Dickson, Malaysia, to load diesel for discharging in Kota Kinabalu, Sandkan and Tawau, Malaysia.

62. BRO CATHERINE Discharging diesel in La Libertad, Ecuador, loaded in Amuay Bay, Venezuela.

81. PETRO IMTRES En route from Singapore to Tawau and Kota Kinabalu, Malaysia, with unleaded gasoline.

63. BRO ARTHUR En route from Onsan, South Korea, to Quintero, Chile, with diesel.

82. GAN-SHIELD Discharging fuel oil in Hong Kong, China, loaded in Kaohsiung, Taiwan.

64. BRO PROVIDER En route from Rio Grande, Brazil, to Guayanilla, Puerto Rico, and Houston, USA, with chemicals and gasoline.

83. SETO EAGLE Loading jet fuel in Mai Liao, Taiwan, for discharging in Zhuhai and Huangpu, China. 84. GAN-VENTURE En route from Yosu, South Korea, to Batangas, Philippines, with fuel oil and unleaded gasoline. 85. GAN-VALOUR Loading gasoline in Kawasaki, Japan, for discharging in Hong Kong, China. 86. BRO ALEXANDRE Discharging naphtha in Chiba, Japan, loaded in Singapore and Subic Bay, Philippines.

O P ER AT I O N S

Market leader in product tanker shipping Broström is today a world leader in tanker shipping. The company has a strong global presence and critical mass in defined size segments. Together with a strategic focus on contracts of affreightment, this enables Broström to offer its customers reliable and flexible transport solutions at competitive prices.

Broström’s business involves the commercial and technical

In Broström’s Atlantic traffic, which is operated from Larvik,

operation as well as vessel crewing and ownership of product

Norway, large vessels between 20,000 and 60,000 dwt domi-

and chemical tankers. In addition, Broström owns all or part

nate, where Broström has strong positions in the transport of

of five companies (Broström Ship Agency Network, see pages

refined oil products and chemicals, mainly between Europe and

22–23) engaged in vessel clearance, chartering, linear agency,

North America and in the Caribbean.

forwarding and harbour operations. Through 2006 these com-

With the acquisition of Petroships Group in Singapore

panies were part of the Marine & Logistics Services operations

(name now changed to Broström Tankers Singapore), nine ves-

area. Broström’s operations areas structure was dissolved on

sels were added to the fleet, and Broström thereby also has cov-

1 January 2007 since the companies that made up most of

erage in the small and intermediate vessel segments in Asia. All

the Marine & Logistics Services operations area were sold in

of the Group’s activities in Asia are operated from Broström’s

2005 and 2006.

offices in Singapore. Through its global presence, Broström is further developing

Tanker shipping the core of business

its interface with customers in the oil and chemical industry. A

Commercial operation of 86 product and chemical tankers is

strong global brand entails that customers can rest assured that

the core of Broström’s business. Activities also include owner-

they will receive the same high standard of service and quality

ship, technical operation and crewing for most of the vessels,

no matter where in the world they work with Broström.

which are in the size segments Small (5,000–10,000 dwt),

Ownership of Broström’s 52 wholly and partly owned vessels

Intermediate (10,000–20,000 dwt), Handy (20,000–40,000

is managed from the company’s offices in Göteborg, Paris and

dwt) and MR (40,000–60,000 dwt).

Singapore. The other 34 vessels are owned by Broström’s partners

In recent years Broström has both strengthened its positions in existing segments and established a presence in new

(see page 24) or have been chartered in from external parties. Technical operation and crewing of vessels is handled by

markets. The company is a clear market leader in European

Broström’s offices in Göteborg, Paris and Singapore. With

product and chemical tanker shipping and is represented in

respect to crewing, Broström also works in alliance with the

size segments ranging from 5,000 to 40,000 dwt. This business

Philippine crewing company Net Ship Management. Vessels

is operated commercially from offices in Göteborg, Paris and

not technically operated by Broström are run by the company’s

Holbaek, Denmark.

business partners.

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 at sea.

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 depot 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.

O P ER AT I O N S

Strong business offer Broström offers effective and flexible marine logistics solutions

K E Y E V EN T S

to the global oil and chemical industry. Services include transports of refined oil products such as gasoline, diesel and heating

From nine to 22 vessels in Asia

oil, and chemicals such as methanol and ethanol.

• A cquisition of Petroships Group in Singapore, including

Transports are often integrated with customers’ own distribution chains and are made from refineries to storage depots

nine small and intermediate-size product tankers, which

or industries as well as between depots, which puts great

complement Broström’s existing operations in Asia.

• D elivery of four large vessels ordered by Broström’s partner

demands on reliability and delivery ability. The size and scope

Dünya.

of assignments vary depending on the cargo, transport distance and the type of contract agreed upon for the assignment.

Continued expansion in Europe

In 2007, 42% (43) of Broström’s transports were carried out

• New strategic partnership with the German company

under contracts of affreightment. Total cargo volume was 52.5

Reederei Claus-Peter Offen, covering eight 37,000 dwt product chemical tankers, which will be delivered in 2008.

million tonnes (40.1), which is nearly four times as much as to-

• Delivery of two 17,000 product chemical tankers that were

tal annual oil consumption in Sweden. In all, Broström’s vessels

ordered together with the Broström’s Turkish partner

made 7,119 port calls (6,312) during the year.

Dünya.

• Acquisition of two small product tankers for European

Broström’s service offering is characterised by:

traffic together with Erik Thun and one from the German

• reliability and predictability,

company Rigel Schiffahrts – all of which were previously

• far-reaching quality and safety initiatives,

included in the fleet.

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

Investments in Atlantic traffic

• E xtensive upgrades of two vessels for safer, more efficient

• a large, modern fleet that provides effectiveness and flex-

transports of ethanol and methanol.

ibility, and • e xtensive market knowledge gained through local and global

Sale of two older product and chemical tankers.

presence and enduring customer relationships.

At year-end 2007, Broström was financially involved in five newbuildings. Added to these are eleven vessels that will be

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

added to the fleet through various partnerships.

tracts of affreightment. These entail that Broström undertakes to transport agreed volumes between a number of ports decided by its customers over a set period of time. In contrast to time charters, through contracts of affreightment Broström plays an integral role in its customers’ logistics planning. Since

With customer relationships that often endure over several

the contracts span a long period of time and represent an end-

decades, Broström has a deep-rooted understanding of and

to-end solution, customers gain efficiency and can concentrate

respect for its customers’ preferences and conditions.

on their core business.

Reliability and global presence

Advantages for both Broström and its customers

Contracts of affreightment, combined with Broström’s large

The price of product and chemical transports (freight rates)

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

is set by the market and is controlled to a great extent by the

event of a disruption, Broström has access to replacement

relationship between supply and demand for transport capac-

tonnage. Delivery reliability and dependability are key features

ity. A more detailed description of how tanker shipping works

of Broström’s quality concept.

and the factors that steer supply and demand is presented on

These qualities are enhanced by the fact that Broström has

page 13.

built up critical mass in more size segments than most of its

By virtue of its size and through efficient utilisation of the

competitors and that the company can offer global logistics

fleet, Broström can offer customers competitive, predictable

solutions.

prices. The company’s strategic focus on contracts of affreight-

O P ER AT I O N S

ment plays a decisive role in this endeavour since it affords

utilisation and efficiency, especially in segments with short

greater opportunities for planning and thereby minimises

transport distances and numerous port calls. A large share of

ballast voyages.

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

Cargo handling in ports is also highly significant for capacity

which places special demands on efficient cargo handling. Due to the long-term nature of contracts of affreightment, Broström can work together with its customers to exert influence over cargo installations at specific ports and thereby contribute

“ A constant exchange of information between offices and vessels around the world”

to continuous improvement.

Broström is refining its business offer In pace with Broström’s growth, the company’s business offer has also developed, where uniform routines throughout the Group ensure an even, high standard of quality. Broström is continuously developing its business offer in co-operation with its customers. Within the framework of assignments, improvements are made in routines both onboard and ashore. Internal development work pertains primarily to processes and routines concerning quality, safety and the environment. These are described in more detail on pages 30–32. Development of vessels and technical equipment is also

“With a dad who was shipowner, I have been drawn to boats ever since I was a child. A career in shipping has always been my dream. At Broström I assist the people responsible for quality and safety in their daily work. I meet safety representatives onboard vessels and follow up safety meetings. I update our information portal, C-Experience, which includes information about the vessels, certificates and vetting documents. “My work is very exciting and multifaceted, and every day brings a new experience. Working for an international company means that I have to keep track of a lot of different matters and provide the vessels with the right information, such as when laws or regulations are changed. There is a constant exchange of information between offices and vessels around the world. “Quality and safety issues are paramount in tanker shipping, and at Broström we work proactively to constantly stay at the forefront in this respect. The most important documents we work with are called ‘Lessons to learn’, where crew members can share experiences that are important from a safety perspective. By reapplying and exchanging knowledge from previous situations, we can prevent mistakes from being made in the future.” Anne Andersson, QSE Co-ordinator, Fleet Management Göteborg

based on customers’ transport needs and demands for effic iency improvement. IT systems for communication between vessels and shore-based organisations are also under continuous development. A description of this is provided on page 33.

Vessels under constant development Vessel development is conducted both in connection with newbuilding orders and in pace with more stringent demands that are made by customers and authorities. One example of new vessel design is Broström’s D-class vessels – a new generation of product tanker, of which the most recent was delivered in 2007. The D-class vessels have been built according to Broström’s own design and specifications, which have been drawn up in dialogue with customers in the oil industry. Broström’s D-class vessels are designed to minimise air emissions through catalytic exhaust cleaning and prevent any leaks in the event of an accident. The vessels also incorporate enhanced safety features for narrow and heavily trafficked shipping lanes. Moreover, their efficiency is optimised by modern systems for fast cargo handling. In 2007 the BRO PREMIUM and the BRO PROMOTION, which were built in 1999, underwent extensive upgrades to ensure safer and more efficient transports of ethanol and methanol. These upgrades are a prime example of how Broström is constantly working to also develop its existing fleet and ensure that the company can offer its customers the best conceivable service.

O P ER AT I O N S

The market – globalisation and change Economic growth in Asia and continued consolidation of the oil and chemical industry have changed the conditions for product and chemical tanker shipping. As a result of new consumption patterns and new rules governing which additives may be used in transport fuels, a large share of transports are being made over longer distances, which is leading to greater demand for tonnage. The market for product and chemical tanker shipping is af-

expected to grow by approximately 3% per year.

fected by both macroeconomic and industry-specific factors. In addition, seasonal variations and weather play a major role

Demand factors

in demand for transports.

Demand factors include the trend in the world economy,

In product and chemical tanker shipping, price is essentially a direct function of supply and demand. This is most apparent

including political factors and global energy consumption, and factors in the oil industry and energy sector.

in the spot market, although contract shipping is also subject to these fundamental conditions. Interchangeability is another

Macroeconomic and political factors

characteristic of the industry, where vessels can be moved from

Energy consumption strongly correlates to economic activ-

one geographic market to another or between product seg-

ity. In a strong economy, energy consumption rises as result of

ments, depending on how demand varies.

higher electricity and industrial production as well as a greater general need for transports. Macroeconomic factors also

A growing market

include changed trade patterns and technological develop-

Due to this interchangeability, the size of the market is difficult

ment. In addition, interest rates and the situation in the finance

to estimate. Such an estimate is also complicated by the way in

market affect activity among oil traders.

which various companies choose to organise themselves and

Consumption and thus the need for transport are also

report their activities. In addition, a considerable share of trans-

affected by energy policies in various countries as well as by

ports are still handled by the oil and chemical industry’s internal

environmental and trade policy issues. War and various forms

organisations and, in some cases, are under state ownership.

of conflict also affect demand for oil products. However, it is

Consequently, growth of the global fleet is the most reliable

hard to know what effect a war would have on demand for

data available for estimating the size of the market. Accord-

transport. In some cases, a negative effect on consumption can

ing to the research firm Clarkson Research Studies, the global

be offset by greater demand for transports due to the regional

fleet of product tankers (10,000–60,000 dwt) amounted

imbalances between supply and demand that may arise.

to 54.6 million dwt at year-end 2007, with growth of 6.6%

With respect to environmental policy issues, demand is

during the past year. In 2008, growth is expected to be 9.5%.

affected primarily by various decisions, such as taxes on various

Demand for tonnage in the 10,000–60,000 dwt size class is

fuels and which additives are allowed. As a result, components

Factors that affect the transport market FACTORS DRIVING DEMAND

Factors driving supply

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Global oil consumption

Oil consumption 2007, by region

Global oil consumption is growing by slightly more than 2.3% per year and in pace with increasing prosperity around the world.

In recent years, large parts of Asia have enjoyed strong growth in economic prosperity. Today Asia is the worldâ&#x20AC;&#x2122;s largest market for oil products.

in transport fuels are being blended at a later part of the distribu-

production disruptions also lead to regional imbalances, which

tion chain, and transports of additives and components have

affects the need for transport. In recent years these imbalances

consequently increased in recent years.

have grown wider by the trend in Europe, where diesel is increasingly replacing gasoline as car fuel. The difference between spot and forward prices for crude oil

The energy market In the energy market, the various forms of energy (mainly oil,

and refined oil products also affects the balance between produc-

coal, hydroelectric power, nuclear power and gas) compete with

tion and consumption of stored oil, which in turn affects the

each other. A drop in production of one type of energy leads to

short-term need for transport. A similar connection exists in the

greater demand for other alternatives. In recent years, various

chemical industry. Expectations on the movement in oil prices

alternative fuels, such as ethanol, have emerged as alternatives to

also affect activity among oil traders. If a price decline is anticipat-

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

ed, activity decreases, which also affects demand for transports. Further, the transport market is affected by the structure of

accommodate transports of these fuels. Added to this, weather and seasonal variations play a major role

the oil industry and by strategic decisions made by oil companies.

in demand for various types of energy. A cold winter leads to high-

Consolidation in the oil and chemical industry in recent years has

er demand primarily for heating oil, while gasoline consumption is

resulted in larger, but fewer, production units as well as a grow-

usually highest during the summer months. Seasonal variations also

ing reliance on â&#x20AC;&#x153;just-in-timeâ&#x20AC;? thinking, with smaller oil stocks

include effects of major holidays and vacation periods.

and more frequent deliveries as a result. This is putting higher demands on the reliability and flexibility of transport systems. Moreover, many oil companies have divested their own

The oil market Developments in the oil market itself also affect demand for

shipping activities and have instead chosen to outsource their

transports. One important factor is capacity utilisation and the

logistics services to external providers.

location of refineries in relation to where consumption of oil products takes place. In recent decades, virtually all new refiner-

Supply factors

ies have been built in Asia and other markets outside Europe

Supply of transport services is driven primarily by the availability

and North America, where the greatest share of consumption is

of transport capacity and how the various participants in the

taking place. Maintenance requirements, labour conflicts or other

market act.â&#x20AC;&#x201A;

Various contract forms â&#x20AC;&#x201C; cost breakdown

Contracts of affreightment*

Capital costs: Depreciation, interest Operating expenses: Personnel costs, maintenance, repairs, insurance premiums, docking charges Voyage costs: Bunker (fuel), port charge

â&#x20AC;˘ â&#x20AC;˘ â&#x20AC;˘

Spot market

â&#x20AC;˘ â&#x20AC;˘ â&#x20AC;˘

Time charter

â&#x20AC;˘ â&#x20AC;˘

Bareboat charter

â&#x20AC;˘

Ordinarily approximately 50%â&#x20AC;&#x201C;60% of BrostrĂśmâ&#x20AC;&#x2122;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. 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.

The Fawley refinery on Southampton Water in England. Refineries are a vital link in the logistics chain for oil companies. Temporary disruptions or changed consumption patterns give rise to a greater need for transports, since individual products must be moved from one region to another.

Shipowners and logistics operators

Transport capacity

Apart from shipowners and logistics operators, the supply side

Supply consists of the total fleet available to meet the current

of the transport market consists of oil and chemical companies

transport need in the market. For example, supply in an individu-

that charter vessels on time charters and thereby take respon-

al market can be affected by the number of vessels that can meet

sibility for their operation. Certain shipowners and logistics

demands for ice classification or other restrictions in specific

operators concentrate strictly on commercial operation of

harbours. The size of the fleet is steered by the relation between

vessels, others on technical operation, and a few others on

the number of newbuilding deliveries and the rate of scrapping,

vessel ownership. It is also common for a single company to be

which has traditionally been steered by the technical age of

responsible for all or a couple of these aspects.

vessels, trade conditions in the freight market and the second-

The structure of the market is also affected by the choice of

hand price of the steel that is recovered from scrapped vessels.

strategies pursued by the various players and by who owns the

In recent years, however, higher quality and safety standards

companies. Having a large share of vessel operators with strong

have led to a sharper focus on vessel ages and hull design. Crew

ties to individual oil and chemical companies reduces competi-

qualifications and the shipping companies’ organisation have

tion in the open market, as do individual players who limit their

also become increasingly important for determining how well

operations to a specific geographic market or to clearly defined

supply meets demand.

size or product segments. The choice of contract form also affects the competitive situ-

Newbuilding activity

ation. For example, if a shipping company charters out a vessel

The ability to rejuvenate the fleet and thereby increase supply is

on a long-term bareboat or time charter to an oil company, this

dependent on the available capacity to build new vessels, which

removes the vessel from the open market for some time. The

is also affected by demand from other shipping segments. Added

difference between the various contract forms is shown in the

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

table on page 14.

– mainly steel. By extension, supply is also affected by macroeconomic factors such as interest rates and access to capital.

Broström’s ten largest customers (in alphabetical order)

Website

www.bp.com

Chevron

www.chevron.com

Ecofuel

www.eni.it

ExxonMobil

www.exxonmobil.com

Petroplus

www.petroplusholdings.com

Petroruss

No website available

Shell

www.shell.com

StatoilHydro

www.statoilhydro.com

Total

www.total.com

Vitol

www.vitol.com

O P ER AT I O N S

Competition in consolidating market BrostrĂśm is the worldâ&#x20AC;&#x2122;s fourth largest independent private operator in tanker shipping based on fleet size. The company is the largest operator in European product and chemical tanker shipping and one of the five largest in the world in the larger size segments. Tanker shipping can be broken down into two main seg-

a commercial operator like BrostrĂśm. Moreover, there are

ments â&#x20AC;&#x201C; crude oil and product tanker shipping. Crude

different ways of operating vessels, and as a result, there is a

oil is usually transported in large vessels from oil wells or

risk of the same vessel being counted twice, depending on

shipping harbours to refineries. This means that the vessels

who owns, operates or charters it.

often make return voyages without any cargoes.

In terms of the entire global tanker fleet and based on the number of vessels, BrostrĂśm â&#x20AC;&#x201C; with its commercially oper-

Various forms of tanker shipping

ated fleet â&#x20AC;&#x201C; is the fourth largest independent private operator

BrostrĂśm focuses exclusively on transports of oil products

in tanker shipping. The largest is the Danish company Torm,

and chemicals such as ethanol and methanol, which are

followed by the Canadian company Teekay and the American

transported in large volumes. Transports are ordinarily

operator OSG. However, these vessels are mainly active in

made from refineries to depots/industrial locations or

larger size segments and in crude oil tanker shipping, a segment

between depots in order to even out regional imbalances.

whose business logic differs entirely from BrostrĂśmâ&#x20AC;&#x2122;s.

This activity differs in many ways from crude oil tanker

The ten largest independent private operators in tanker

shipping, including the use of smaller vessels. In addition,

shipping are listed in the table opposite. The compilation

voyages are shorter and more frequent, which makes it

focuses on commercial operation of vessels.

possible to establish transport patterns for efficient fleet

Market leader in defined segments

utilisation. BrostrĂśm encounters competition primarily from other

In all, there are slightly more than 4,000 product and

shipping companies focusing on product and chemical tanker

chemical tankers in the world in BrostrĂśmâ&#x20AC;&#x2122;s size segments

shipping. However, depending on the market conditions,

up to 60,000 dwt. BrostrĂśm is the largest independent

other operators active in crude oil tanker shipping can also

private operator in these segments. The company has also

compete for assignments, primarily for heavier oil products

set itself apart from most other competitors by having built

over longer distances.

up critical mass in all sub-segments, which creates opportunities for flexible and more efficient transport solutions.

Fourth largest in the world

However, in individual sub-segments, there are operators

The ability to move vessels between various segments

who are larger than BrostrĂśm.

and geographic markets, based on the demand situation, complicates a description of the competitive situation for

After BrostrĂśm ranked by size are the companies Handytankers and Norient.

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N 4NBMM o EXU N *OUFSNFEJBUF o EXU Global competitive situation in small and intermediate size classes

BrostrĂśm is the world leader in the small and intermediate segments. This creates unique opportunities to provide efficient transport solutions for customers.

Product tankers on order in the world at year-end (10,000â&#x20AC;&#x201C;60,000 dwt) The shipyardsâ&#x20AC;&#x2122; orderbooks continued to grow in 2007. HowÂever, the addition of tonnage varies from segment to segment.

All employees are ambassadors of Broström’s shared culture and brand. Living up to customers’ expectations requires close co-operation between the various parts of the organisation.

Number one in Europe

the newbuilding or second-hand markets, and many are

With its large fleet and critical mass in several sub-seg-

awaiting delivery of new tonnage in the coming years.

ments, Broström can build up more flexible transport systems for its customers. This has helped make Broström

Fragmented picture in Asia and Atlantic

a market leader in European product tanker shipping – a

The competitive picture in Asia and the Atlantic is

market that has been undergoing consolidation and con-

fragmented, since tonnage in the large segments is often

centration in recent years.

moved from one area to another. A large share of the vessels

In the smallest size segments (small and intermediate), the

are employed on time charter with oil companies and oil

ties between customers and shipping companies are often

traders, which makes the competitive situation difficult

strong, with contracts of affreightment accounting for a large

to discern. In the larger size segments in Asia, Broström’s

share of business. The larger segments (handy and MR) are

primary competitors are the Danish company Torm, Singa-

characterised by greater market fluctuations and an ability to

pore-based Ocean Tankers and the two Japanese compa-

move vessels between geographic markets. The more long-

nies Mitsui and NYK. Ocean Tankers also operates in the

term contracts consist primarily of time charters. For example,

small size segments, which is otherwise characterised by a

if freight rates in Europe are higher than over the Atlantic,

number of small, local players.

many players will also try to move away from this market in

Competition for chemical transports in the Atlantic and Caribbean comes primarily from Eitzen Chemical, the

favour of intra-European traffic. In individual sub-segments, Broström’s chief competitors in

Malaysian company Aurora Tankers and the two Norwegian

northern Europe are the three Danish companies/vessel pools

companies Stolt Nielsen and Odfjell. Long-term contracts

Handytankers, Swift Tankers and Herning Shipping. Other

of affreightment are the predominant contract form in this

competitors include the Norwegian company Eitzen Chemi-

sub-segment.

cal, US-based Heidmar and its Marida pool, and the Italian

In both Asia and the Atlantic, the anticipated addition

company Montanari. Added to these are a number of play-

of new tonnage is great. There is also a trend toward

ers with ties to oil companies and which compete to a lesser

consolidation through mergers and acquisitions as well as

extent directly with the independent players.

through the formation of large vessel pools by the various

In recent years all of the operators have been active in

shipowners.

The world’s largest independent private operators in tanker shipping Operator

Head offices

Ownership

Tonnage segment, dwt

No. vessels

Torm

Hellerup, Denmark

Listed

30,000–120,000

120

Website www.torm.dk

Teekay Corporation

Vancouver, Canada

Listed

10,000–250,000

102

www.teekay.com

OSG

New York, USA

Listed

30,000–250,000

Broström

Göteborg, Sweden

Listed

Frontline

Hamilton, Bermuda

Listed

Handytankers (Maersk and others)

Copenhagen, Denmark

Vessel pool

Norient Product Pool (DS Norden and others) Copenhagen, Denmark

Vessel pool

Tankers International (OSG and others)

London, UK

Vessel pool

Tsakos Energy Navigation (TEN)

Athens, Greece

Listed

Aframax International (OSG and others)

New York, USA

Vessel pool

80,000–120,000

90 *

www.osg.com

5,000–60,000

www.brostrom.com

80,000–250,000

www.frontline.bm

30,000–60,000

www.handytankers.com

30,000–60,000

www.norientpool.com

>200,000

www.tankersinternational.com

30,000–250,000

www.tsakosgroup.com

www.aframaxinternational.com

*) Including vessels in pools

O P ER AT I O N S

Market and business development The global economy remained strong in 2007. However, the market for product and chemical tanker shipping was characterised by major fluctuations. BrostrĂśm approached this development through continued expansion both in Europe and Asia. Together with its focus on contracts of affreightment, this contributed to stable develÂ opment and stronger positions. The market was in a wait-and-see mode at the start of the year.

pace with colder temperatures in February and March. The

Colder weather thereafter contributed to a market rise, which

trend was intensified by strong demand for shipments of gaso-

continued until early summer. The third quarter was weaker

line from Europe to West Africa due to production disruptions

before the market recovered sharply during the late autumn.

at refineries in Nigeria.

Uncertainty surrounding the trend in oil prices had a slightly

The market for methanol transports over the Atlantic was

negative impact on the market. Moreover, BrostrĂśmâ&#x20AC;&#x2122;s earnings

under pressure throughout the quarter as well as during most

were hurt by the steadily weakening dollar.

of the year.

During the year, BrostrĂśm carried out two major strategic

The market for small and intermediate tonnage in Europe

deals. In February, a new partnership was struck with the

was more stable. Strong winds and port strikes resulted in the

German company Reederei Claus-Peter Offen covering eight

withdrawal of a large number of vessels from the freight mar-

product tankers, which will be delivered from the shipyard

ket, which counteracted the effects of the mild weather. This

in 2008. In May, BrostrĂśm acquired Petroships Group in

stable market picture thereafter continued as temperatures

Singapore. This latter deal added nine vessels to the Groupâ&#x20AC;&#x2122;s

fell and ice formed on the Baltic, which increased demand for

fleet, including one under commercial management, in the

ice-classed tonnage.

small and intermediate vessel segment in Asia.

In Asia, the year started out with a relatively strong freight

Due to BrostrĂśmâ&#x20AC;&#x2122;s focus on contracts of affreightment,

market before warm weather in the north, extensive mainte-

the company was able to maintain a steady, high degree of

nance shutdowns at refineries and celebration of the Chinese

capacity utilisation during the year. The acquisitions and new

New Year led to lower demand for transport capacity.

partnerships entered into in 2006 and 2007 contributed to a steady rise in orders and improved capacity utilisation of

New partnerships and larger fleet

BrostrĂśmâ&#x20AC;&#x2122;s fleet.

With a large share of ice-classed tonnage, BrostrĂśm benefited from the upswing in the market in February and March, which

Cold weather heated up market

was mainly caused by greater transports of Russian oil products

The year started out with mild weather and well-filled stocks

from the Gulf of Finland. This initially affected large tonnage

of refined oil products, which contributed to a weak freight

operating over the Atlantic, but subsequently also intermedi-

market primarily in the large European segments and the

ate and small vessels in European traffic.

North Atlantic. The freight market recovered thereafter in

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Deliveries and scrapping of world product tanker fleet (10,000â&#x20AC;&#x201C;60,000 dwt)

BrostrĂśm also benefited from the resumed export of â&#x20AC;&#x201A;

Scrapping of older tonnage, and more and longer transports, are partly balancing the effects of a large inflow in new tonnage.

Spot market freight rates for light oil products The market for transports of oil products remained volatile in 2007. The second half of the year was characterised by a sharp decline in the spot market.

O P ER AT I O N S

Russian oil products from Archangelsk and an increase in

tion of gasoline also rose in Europe, entailing that the need for

exports of naphtha from Kaliningrad. The latter had a posi-

imports in the US was mainly met with gasoline from refineries

tive effect primarily on intermediate tonnage of less than

in the Caribbean. Extensive imports of oil products by Nigeria

20,000 dwt, since larger vessels are not permitted to enter the

also contributed to the strong market.

harbour in Kaliningrad. In general, there is also a general preference among Russian authorities to use primarily Russian ports and terminals for export. As a result, even small Russian ports were used to export relatively large volumes.

The European market remained stable during the second quarter, but with a seasonal decline early in the summer. The market in Southeast Asia strengthened early in the quarter and remained relatively stable.

In terms of Atlantic traffic and European operations as a whole, contract coverage varied during the first quarter.

Acquisitions strengthen positions in Asia

Contract volumes were high in the segment of less than

Broström’s operations in Europe and the Atlantic experienced

10,000 dwt.

continued strong development during the second quarter,

In February the BRO DEVELOPER (14,750 dwt) was delivered from the shipyard in China. During the same month, two older vessels, the BRO TRANSPORTER and the BRO TRADER, were sold. Broström’s Asian traffic also had favourable development. During the quarter, two vessels, the GAN-VOYAGER and the GAN-VALOUR (47,000 dwt), were delivered. In pace

and the company was able to benefit from the upswing in the market. European operations performed strongly in all sub-segments. Broström was able to draw continued benefit from greater Russian exports from both Archangelsk and the Black Sea via the Mediterranean. During the quarter, contract volumes continued to show a

with the growth of Broström’s fleet in the region, even better

varied trend. Again, contract coverage was highest in the small-

utilisation of the combined fleet is made possible, which

est tonnage segment. Contract negotiations carried out during

began having a favourable earnings impact already during the

the quarter had a satisfactory outcome.

first quarter. In February Broström entered into a long-term partner-

In May Broström and the company’s long-standing partner Erik Thun reached an agreement to each acquire 50% of two

ship with the German shipowner Reederei Claus-Peter

chemical and oil tankers, the MARISP and the MARELD

Offen. The eight new vessels will be delivered in late 2008

(7,100 dwt), built in 2003 and 2004, respectively. Both vessels

and will entail a doubling in Broström’s European fleet in the

have been operated commercially by Broström for more than

37,000 dwt segment.

two years.

Fuel-driven market during the spring

pany took delivery of the GAN-VICTORY (47,000 dwt).

The second quarter was characterised by a seasonal build-up

With its growing fleet, Broström managed to grow its customer

of gasoline stocks in the US ahead of the summer months. This

base in the region and benefit from the upswing in the market.

build-up of stocks gave rise to a greater need for imports, with

The transport contracts that were up for renegotiation were

favourable demand for transports both from northern Europe

extended at higher levels than previously.

In Asia, Broström continued its expansion, and the com-

and the Black Sea as a result. Later in the quarter, consump-

At the end of May Broström acquired Petroships Group in

Singapore, comprising nine small and intermediate product

weaker development. Broström entered into a couple of new

tankers for traffic in Southeast Asia. This acquisition is a strate-

transport contracts during the quarter.

gic complement to Broström’s existing operations in this part of the world and a platform for continued expansion.

In late July 2007, Broström took delivery of the first vessel – the GAN-OCEAN (17,000 dwt) – in a series of six that are being built at a shipyard in Turkey. Broström and its partner

Downturn during the third quarter...

Dünya will each own three of the vessels, all of which will

The third quarter was characterised by a steadily weaker spot

be operated within the framework of Broström’s European

market primarily in Europe and the North Atlantic, partly due

operations.

to a seasonal decline. In addition, the market was hurt by main-

In Asia, Broström continued its expansion, especially

tenance work at several refineries and a drop in trading activity

by further broadening the company’s customer base in

in the oil market. The latter was due to, among other things,

the region. During the period, operations showed a stable,

mistaken anticipations of a decrease in oil prices during a long

favourable trend, and capacity utilisation of the fleet was high

period, which kept oil traders on the sidelines. This wait-and-

at that same time that contract volumes remained at favour-

see attitude was strengthened by growing caution by banks

able levels.

and other lenders in pace with rising credit anxiety in the US. In the Baltic Sea, transport volumes fell due to a decline in

An important part of this work involved the continued integration of Broström Tankers Singapore.

Russian exports. This was partly due to the Russian political decision to shore up supplies ahead of the harvest season, but also

Extremely weak market in October

to the fact that Russia’s refineries had not yet fully converted

The general market decline continued into the early part of

their production ahead of changed rules in the EU regarding

the fourth quarter. Thereafter an improvement was noted

maximum permissible levels of sulphur.

in November, and the year ended with a relatively strong

The market for methanol transports over the Atlantic remained weak during the quarter, although a slight upturn was noted in September. The Asian market had a more stable trend, even though it

spot market. In the Atlantic, the initially weak market was caused primarily by well-filled stocks, lower demand and an increase in production by US refineries, which had an adverse effect on

was affected by lower export volumes to Europe and North

import needs. The subsequent recovery could be credited to

America. Combined with the large addition of newly built

rising gasoline prices and a need for fuel oil ahead of the winter

vessels from Asian shipyards, this had a restraining effect on the

months, among other things. Greater demand for transports of

market in the region.

biofuels from Latin America and the US to Europe also contributed to the recovery. The upturn in the Atlantic also had a

...but Broström held out

positive effect in the European market. The rise was strength-

The very weak spot market during the third quarter affected

ened by low stock levels and poor weather in the Mediterra-

Broström’s Atlantic traffic, above all. In addition, the company

nean. In the smallest size segment, demand for transports from

carried out a larger number of planned dockings than in the

Russian ports remained strong.

preceding year. The decline in Atlantic traffic also affected the larger tonnage segments in Broström’s European traffic. The smallest

demand for transports of naphtha from the Middle East to

segment experienced stable development, however.

northeast Asia and exports of oil products from Asia to Europe

Contract coverage during the quarter remained high in the smallest tonnage segment, while other segments showed

The Asian market had more stable development. Here, too, an upturn was noted in November, mainly driven by higher

and North America.

Higher interest in contracts of affreightment The weak market during the start of the fourth quarter mainly affected Broström’s activities in Europe and the Atlantic. When freight rates then turned upward, the tide also turned for Broström, which managed to maintain satisfactory capacity utilisation of the fleet over the entire period. Approaching year-end, Broström also noted growing interest from both new and existing customers to sign contracts of affreightment. Above all, the company was able to complement existing contracts in the Asian market with new contracts,

“ A well planned schedule is the key to success”

which is in line with Broström’s growth strategy in the region. During the fourth quarter, two new vessels which are owned and technically operated by Dünya joined the Broström fleet. The delivery of the GAN-SWORD (17,000 dwt) complemented Broström’s European operation by an additional vessel, while the GAN-SPIRIT (51,000 dwt) joined the company’s Asian fleet, which thereby increased during the year from nine to 22 vessels.

Increasing share of new tonnage In 2007 a large number of new vessels were delivered in Broström’s segments. At the same time, rising quality, safety and environmental standards are making it increasingly difficult for older vessels to compete in specific markets and for assignments from the global oil and chemical companies. At year-end 33% of the world’s fleet in Broström’s segments were older than 20 years, and 29% lacked double hulls. At the same time, waiting times for new tonnage are very long, and the shipyards’ orderbooks are full for many years into the future. The second-hand price of quality therefore continues to be high. During the year, 16 vessels were added to Broström’s fleet through newbuilding and acquisitions of vessels and companies. Another 16 vessels will be joining the fleet in the years immediately ahead. With an already modern fleet, this will further strengthen Broström’s competitive position. Together with its focus on contracts of affreightment and its large,

“My job involves making sure the fleet is optimally utilised in all situations. It is a challenging task, with a number of factors that affect the vessels’ schedules. A schedule that looks perfect today might turn out to be a disaster tomorrow, such as when a vessel is delayed for some reason. So a well planned schedule is the key to success. “My career began at sea working for the shipping company Odfjell. When Broström announced they were looking for an operator in Sandefjord, I seized upon the chance. After three years I became a charterer. “One of the biggest challenges of my job is to ensure that the customers are fully satisfied with the service we provide. With good communication through the entire chain – from crewing to operator – and a good understanding of our business, we can succeed. “Broström takes good care of its employees and invests in us by developing and preparing us for new challenges and situations. It has a motivating effect and influences the mood at the office. With happy colleagues, it is more fun to work, especially on longer days when the job brings tougher challenges.” Sigmund O. Aarnes, Atlantic Charterer Broström Tankers, Larvik, Norway

modern fleet, Broström has great opportunities to capture additional market shares in a market that is expected to be characterised by wide fluctuations in the years ahead.

O P ER AT I O N S

Effective network in Swedish ports Broström Ship Agency Network consists of five shipbrokerage companies active with vessel clearance, chartering, liner agency and forwarding. The companies are represented in 15 ports along the Swedish coast and together account for roughly half of total goods volume at Swedish ports. Together the companies assist their customers with more than 2,000 port calls every year. By shortening the time customers’ vessels spent in port, the companies in the network help cut costs and improve their customers’ earnings capacity. The scope of individual assignments varies depending on the size of the vessel.

“ Having the whole world as your playing field is part of the job”

The network’s key competitive strengths are its ability to meet customers’ requirements and a consistent high level of quality. The companies in the network have good knowledge of the business, excellent customer relationships, and committed and knowledgeable employees. Broström Ship Agency Network combines the local companies’ proximity to customers with opportunities to co- ordinate market activities and resources in the aim of reaching international agency agreements with large customers.

“I began my career as an apprentice at the Copenhagen-based shipping company C. Clausen, and following that I have worked with Maersk, J. Lauritzen, Wonsild & Søn and Knud I. Larsen before taking a position with Nordtank Shipping, which was subsequently acquired by Broström. So now I work for a global company and I can see several advantages. I have access to more knowledge about the freight market at the same time that it is a competitive advantage to belong to Broström. “As a charter I work in the market for vegetable oil and chemical transports. I charter vessels that go to various destinations around the world, including North and South America. Apart from this, I also conduct market studies. To be a good charterer I think you need extensive experience from the tanker shipping market and a good ability to find and capitalise on business opportunities. “Broström is a well organised company, and it is very reward ing to work in an organisation with such dedicated employees and in a work environment that gives you lots of leeway. The entire company is permeated by a co-operative spirit, which is a big advantage when working in an international environment.” Niels Storringgaard, Charterer Europe, Broström Tankers, Holbaek, Denmark

In June 2007 Broström sold its 50% stake in Percy Tham i Oxelösund AB to the other part-owner, Transatlantic European Services AB. This means that virtually all of the shipbrokerages within the network are now wholly owned, except for SwanFalk Shipping, which is owned by Uddevalla Hamnterminal – in which Broström is a part-owner.

Market conditions Customers in the network consist primarily of shipping companies, transport companies, various purchasing or trading companies, and the Swedish export industry. The oil and chemical industry is an important customer group for August Leffler and Simon Edström Shipping, 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 at the various ports at which the company is active. Project transports are one of Unér Shipping’s specialist competencies. The companies’ market shares vary widely between the various ports at which the network is represented. Competitors consist primarily of local shipping agents and foreign agency networks. Uddevalla Hamnterminal works in a highly competitive market and encounters competition from other ports and modes of transport.

The Broström Ship Agency Network 1 August Leffler & Son, Brofjorden

9 Unér Shipping, Oskarshamn

2 Uddevalla Hamnterminal and SwanFalk Shipping, Uddevalla

10 Unér Shipping, Kalmar

3 August Leffler & Son, Stenungsund

11 Unér Shipping, Halmstad

4 August Leffler & Son/Blidberg, Metcalfe & Co, Göteborg

12 Unér Shipping, Åhus

5 Simon Edström Shipping, Karlshamn

13 Unér Shipping, Bergkvara

6 Unér Shipping, Stockholm

14 Unér Shipping, Karlskrona

7 Unér Shipping, Norrköping 8 Unér Shipping, Västervik

Market development

ports and an increase in port calls made by gas tankers.

The market showed continued favourable development in

Uddevalla Hamnterminal noted favourable development dur-

2007, mainly due to an increase in oil and chemical transports

ing the year. The number of port calls increased, while gross

and another strong year for the Swedish export industry. Parallel with this, the trend of more stringent requirements

tonnage was unchanged. This entailed more even capacity utilisation, since more but smaller vessels called on the port.

continued, including documentation from the authorities.

Unér Shipping benefited from a continued rise in project

This gives more established players like the companies in the

transports and a larger volume of biofuel transports. Sales were

Broström Agency Network a competitive edge while making

stable, and the company showed strong earnings.

it less attractive for shipping companies to handle agency work on their own. During the year, price pressure from

Future outlook

shipping companies intensified along with a continued trend

Despite the very stable nature of the Ship Agencies business,

toward increasingly larger tonnage and larger volumes. This is

sales are expected to continue rising in 2008. The trend in

resulting in a decrease in the number of assignments while also

the oil industry is expected to lead to a continued high level

making it more difficult to find tonnage for smaller cargoes.

of activity at the oil ports in Brofjorden, Göteborg (August Leffler) and Karlshamn (Simon Edström). Moreover, refinery

Ship Agencies in 2007

investments made in Brofjorden are expected to lead to larger

The Ship Agencies business performed strongly for the third

volumes.

year in a row, and port activity was high. All companies posted stable or growing sales along with earnings improvements. August Leffler experienced a continued strong trend in oil transports both from and to Göteborg and Brofjorden. In the

Karlshamns Hamn is also in a period of expansion and is expected to generate larger flows of goods and a larger number of port calls in 2008. Unér Shipping is expected to be able to continue ben-

latter case, however, the competition intensified, which had a

efiting from a growing number of project transports and

negative impact on the number of assignments. However, the

transports in the biofuels sector.

decline in Brofjorden was offset by strong growth in volume

Uddevalla Hamnterminal is expected to benefit from the

in Göteborg. August Leffler also gained a greater share of the

further development of its co-operation with West Sweden

cruise market in Göteborg.

Seaports.

Simon Edström continued to deliver favourable earnings, mainly due to the strong market for oil and chemical trans-

O P ER AT I O N S

Broström attractive for business partners Broström handles the commercial operation of 86 modern product and chemical tankers, of which the company wholly or partly owns 52. The rest of the vessels are owned primarily by long-term partners, many of which also provide technical support and crewing for the vessels. In 2007 a new partnership was entered into with the German company Reederei Claus-Peter Offen. The mutual benefits of these partnerships have enabled Broström to build further upon existing partnerships as well as enter into new agreements. 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 16 modern product and chemical tankers ranging in size from 9,000 to 37,000 dwt. The company also has eight newbuildings on order. Its partnership with Broström involves the commercial operation of ten of its vessels. 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 is a part-owner of the BRO ATLAND and a product tanker currently being built. Broström is responsible for commercial operation of the four product tankers, in which it is also a part-owner. 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 74 tank terminals in 30 countries. The company is also active in inland tanker shipping. Vopak has approximately 3,500 employees worldwide, with sales of slightly more than SEK 7,890 m in 2007.

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 two newbuildings. Broström and Erik Thun have a joint involvement in ten product tankers and the 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 conducts technical operation of 12 product and chemical tankers and has an additional nine newbuildings on order. Broström’s and Dünya’s partnership covers seven existing vessels ranging in size from 47,000 to 51,000 dwt, of which four were delivered in 2007. A fifth vessel was delivered in January 2008. The partnership also includes three newbuildings of 17,000 dwt each, of which the first two were delivered in 2007 and the remaining vessel will join the fleet operated by Broström in 2008. Dünya is domiciled in Istanbul, Turkey, and has been owned and run by Suay Umut since its establishment 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 Broström Tankers. 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.

Reederei Claus-Peter Offen www.offenship.de Reederei Claus-Peter Offen is one of the world’s largest container tanker shipping companies. The company operates approximately 100 vessels worldwide and is also waiting delivery of approximately 20 newbuildings. Its partnership with Broström covers eight newbuildings of 37,000 dwt, which will be owned by Reederei Claus-Peter Offen and commercially operated by Broström. These vessels will be delivered in 2008. Established in 1971, Reederei Claus-Peter Offen is domiciled in Hamburg and has approximately 3,000 employees.

EM P LOY EES

Working for success. Together. BrostrĂśm works consciously on employee development. As a workplace BrostrĂśm is characterised by a positive internal climate, strong shared values and openness. Together these make BrostrĂśm an attractive employer.

In recent years BrostrĂśm has been successful in developing a

BrostrĂśm has made good progress in its efforts to be perceived

cohesive structure based on shared values and respect for em-

as a unified workplace. In 2008 BrostrĂśm will be conducting a

ployees and customers alike. This is of special importance for a

global employee survey to measure if the picture is the same in

company with some 1,500 employees around the globe, most of

the entire Group.

whom work onboard vessels that are in constant motion. Part of this work is the major brand project that was

Quality on the agenda

launched in 2006. In 2007, a great deal of time and energy were

BrostrĂśm invests both time and resources on continuous compe-

focused on laying down roots for the brand platform internally.

tence development for its employees. One key area concerns

Employer branding has been a key part of this work. The aim

matters related to quality, safety and the environment, where

is to give everyone â&#x20AC;&#x201C; employees and prospective employees

major emphasis is put on knowledge of internal systems and

â&#x20AC;&#x201C; an opportunity to increase their knowledge about BrostrĂśm

processes.

and its role as an employer. Part of this entails making the

During the year, ship officers received further training in

companyâ&#x20AC;&#x2122;s shared values known both within and outside of

vetting, i.e., oil companiesâ&#x20AC;&#x2122; inspections of vessels. To date some

the Group. This need is especially keen in a company that is

160 officers have participated in this continuing education, and

constantly growing and taking shape. Most recently, in 2007,

the work will continue in 2008 when an even greater initiative

BrostrĂśm grew by 400 employees in connection with the

will be conducted on training officers working under contracts.

acquisition of Petroships Group in Singapore.

The aim is to provide an introduction to operations and a more in-depth picture of BrostrĂśm while giving employees insight

One company â&#x20AC;&#x201C; one profit-sharing system One expression of BrostrĂśmâ&#x20AC;&#x2122;s ambition to promote co-op-

into how work is conducted at the head offices. Apart from general training activities, BrostrĂśm works

eration between the various parts of the Group â&#x20AC;&#x201C; not least

continuously with individual-based competence development

between the organisations ashore and onboard the vessels

for employees. This is based on yearly performance dialogues,

â&#x20AC;&#x201C; can be seen in the fact that all employees are included in

which lead to individual development plans. On top of this, all

the companyâ&#x20AC;&#x2122;s profit-sharing system (described on page 79).

new employees participate in an orientation programme. The

The profit-sharing system also includes contract employees

total cost of competence development initiatives during the

onboard vessels.

year, excluding contract employees, was SEK 11.7 m (9.6), cor-

The most recent employee survey that was carried out in 2006 among the companyâ&#x20AC;&#x2122;s Swedish employees shows that

4&, T

is attributable to the acquisition of Petroships Group, where

responding to SEK 11,200 (15,000) per employee. The decrease

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Net sales and value-added per employee Net sales and value-added per employee are dependent in part on the financial outcome for BrostrĂśm as well as on how much of the aggregate work is performed internally as well as by the companyâ&#x20AC;&#x2122;s partners.

BrostrĂśmâ&#x20AC;&#x2122;s competence development programme will be carried out in 2008.

Low employee turnover and sickness-related absence BrostrĂśmâ&#x20AC;&#x2122;s status as an attractive employer can also be seen in

Competent Philippine crews

statistics on employee turnover and sickness-related absence.

For several years BrostrĂśm has been working in alliance with

Employee turnover for replacement recruitment was 9.2% in

Net Ship Management in Manila, the Philippines, a crewing

2007 (8.6). BrostrĂśmâ&#x20AC;&#x2122;s workforce increased during the year by

agency in which BrostrĂśm also became a part-owner in 2007.

39%. Sickness-related absence in the company is low and was

The aim of this co-operation is to ensure access to contract

2.7% (2.2) in the Swedish shore-based organisation.

employees with the right competence and training. Net Ship Management is an important tool for BrostrĂśm in

BrostrĂśm works continuously to improve its work environment and reduce the risk for work injuries. Accidents and

the growing competition for Philippine crews. After playing

other safety-related factors are reported and analysed. Com-

a key role in the global trade fleet for more than 40 years, this

pared with many other industries, shipping has relatively few

talent pool of seamen is highly coveted. Moreover, the mere

work injuries. Measured in terms of lost time injury frequency

fact that they have English as their native language facilitates

(LTIF), shipping has about half as many work injuries as the

communication onboard, which is an important factor when it

Swedish manufacturing industry.

comes to issues involving quality, safety and the environment. Net Ship Managementâ&#x20AC;&#x2122;s business is experiencing stable

Norwayâ&#x20AC;&#x201C;Singapore and back again

growth, and the company serves more than 70 vessels for a total

During 2007 BrostrĂśm arranged a number of well-being initia-

of 14 shipping companies. Today the company has a network

tives, including the BrostrĂśm Trophy for onboard employees

of some 1,300 seamen, of whom around 800 are concurrently

for the tenth year in a row. More than 500 employees partici-

employed, and approximately 40 office employees. Business is

pated in the event, which promotes exercise by awarding â&#x20AC;&#x153;pre-

doing well, which can be seen in the fact that more than 95%

mium pointsâ&#x20AC;? to those who are most active. The arrangement

of Philippine seamen regularly choose to return to duty on

is simple â&#x20AC;&#x201C; the more employees exercise, the more premium

BrostrĂśmâ&#x20AC;&#x2122;s vessels.

points they receive. The contest helps strengthen cohesion at

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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 is a woman.

BrostrĂśmâ&#x20AC;&#x2122;s employees represent an even distribution among age categories.

the same time that it sends out positive signals to prospective

adjusting operations to accommodate the employees’ prefer-

crew members on Broström’s vessels.

ences and views. For example, in 2008 all communication to and

In October, all shore-based employees around the world

from vessels will be free of charge for employees, and the com-

had the opportunity to participate in the Broström Interna-

pany will be considering opportunities to adjust the time spent

tional Step Competition (BISC). The contest was aimed at

at sea to the needs of seamen, since relief of duties and travel

stimulating awareness about employee health and well-being.

were important matters noted in the responses to the surveys.

It was also a way of showing how daily exercise can have a posi-

To attract new employees, Broström also participates in vari-

tive impact on personal health. The goal was to together come

ous labour market fairs for students as well as at shipping and

up to 58 million steps, which corresponds to one loop around

job trade shows. In addition, a trainee programme was started

the world. Even though the goal was not fully achieved, the

in 2007. Two students were accepted to the programme and

employees’ combined efforts corresponded to a walk from Bro-

will be working with various duties at Broström’s offices around

ström’s offices in Larvik, Norway, to the office in Singapore and

the world during a two-year period. In the future, Broström will

back again. Such a walk would also have passed by the Group’s

be focusing on regular recruitment of trainees and on further

offices in Göteborg, Holbaek (Denmark), and Paris.

developing the programme.

Intensifying battle for competence

competition for new employees. This can be seen in the fact

The shipping industry is facing extensive retirement-related

that the company receives approximately 100 unsolicited job

attrition at the same time that access to experienced crews is

applications every month – about equally divided between the

Broström believes that it is relatively well-positioned in the

limited around the world. To address this challenge, during the

shore-based and onboard organisations – and in the high aver-

year Broström conducted a survey among onboard employees

age period of employment – 10 years.

to learn about what the company can do to be an even more attractive employer. The survey generated some 100 responses from Swedish crew members and around 50 from Philippine crews. Based on the responses, Broström will be gradually

Employee data

2007

2006

2005

Average number of employees

1,206

1,034

1,009

No. of employees at 31 December1)

1,526

1,100

925

Including associated companies.

China has grown to become the world’s leading shipbuilding nation in recent years. Broström has extensive experience in shipbuilding in China and established relations with several shipyards. This means the company also has good control that the shipyards measure up to the company’s standards regarding working conditions and environmental considerations.

A fleet undergoing constant rejuvenation A total of 16 vessels joined Broström’s fleet in 2007, including eight which were included in the acquisition of Petroships Group in Singapore. Broström owns two of the other new vessels, while six are owned by the company’s Turkish partner Dünya. The vessels included in the acquisition of Petroships Group

BRO GOLIAT, which it had already operated commercially.

range in size between 5,000 and 16,600 dwt. Broström thereby

The same applies for the BRO ERIN (formerly the

established itself in the small and intermediate size segment in

HUNTERSTERN), which Broström acquired from its

Asia. In addition to the eight vessels included in the acquisition,

German partner Rigel.

Broström acquired one vessel under commercial management,

Broström sold two vessels during the year. In addition, three vessels owned by Broström’s partners left the fleet.

which was discontinued later in the year. The partnership with Dünya entailed the addition to Bros-

The average age of Broström’s wholly or partly owned vessels

tröm’s fleet of two vessels for European traffic and four vessels

at year-end was 7.1 years, or 6.9 years for the entire fleet that is

that operate in Asia. The two vessels for European traffic are the

commercially operated by Broström. The average age of the

first in a series of six 17,000 dwt vessels which have been ordered

world fleet is 14.2 years in the segment that Broström oper-

by Broström and Dünya, which will each own three. The two

ates in. One hundred per cent of Broström’s tonnage is double

vessels that have been delivered for European traffic and the four

hulled, compared with 29% of tonnage in the world fleet in

for Asian traffic are all owned by Dünya.

Broström’s size segment. At year-end Broström was financially

In 2007 Broström also took delivery of the BRO DEVEL-

involved in five newbuildings. Added to these are an additional

OPER, which is the final vessel in a series of four D-class vessels

eleven newbuildings that have been ordered by Broström’s

ordered by Broström. In addition, together with Erik Thun,

partners. Of these, eight are vessels ordered by Broström’s new

Broström acquired two vessels, the BRO GOTHIA and the

German partner Reederei Claus-Peter Offen.

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Development of the tanker fleet

Ownership structure of the tanker fleet (No. of vessels)

Including newbuildings, Broström’s commercially operated fleet comprises 102 vessels, an increase of nearly 30 vessels in three years’ time.

Through a combination of wholly and partly owned vessels and partnerships, Broström has grown the fleet with limited risk. The chart illustrates Bröström’s fleet excluding newbuildings.

T H E FL EE T

Broström’s fleet, February 2008

dwt

Year built

Ownership form/% stake

dwt

Year built

PETRO EASKEM

Vessel name

5,000

1998

100

WEICHSELSTERN

Vessel name

21,150

1999

Ownership form/% stake

C/M

PETRO IMTRES

5,000

1998

100

WOLGASTERN

21,150

1999

C/M

BRO GLORY

6,900

2000

THEMSESTERN

21,850

2000

C/M

BRO GRACE

6,900

1999

RHONESTERN

21,850

2000

C/M

BRO GOTHIA

7,100

2003

VEGA SPIRIT

22,800

2001

T/C

BRO GOLIATH

7,100

2004

VEGA SPRING

22,800

2001

T/C

BRO VENTURE

7,500

1995

GREAT SWAN

23,400

1991

C/M

PETRO OPTI

7,500

1995

VOYAGER A

31,300

1994

T/C

NB FERUS SMIT 386

7,500

2009

BRO PROVIDER

31,700

2001

100

NB FERUS SMIT 387

7,500

2009

BRO PRIORITY

31,700

2001

100

BRO GLOBE

7,600

2001 50

BRO EDWARD

37,000

2005

B/B1)

BRO GALAXY

7,600

2001

BRO ELLIOT

37,000

2005

B/B1)

BRO GEMINI

7,600

2003

BRO EDGAR

37,000

2004

100

BRO GENIUS

7,600

2003

BRO ELIZABETH

37,000

2001 100

BRO GRATITUDE

7,600

2003

BRO ELLEN

37,000

2002

100

BRO GRANITE

7,600

2004

BRO ETIENNE

37,000

2004

B/B1) 100

9,200

1993

C/M

BRO ERIK

37,000

2005

NORDIC SWAN

NANNY

10,600

1986

C/M

BRO ERIN

37,000

2004

100

BRO CONCORD

12,200

1995

100

NB CPO FRANCE

37,000

2008

C/M

PETRO FOREMOST

12,600

1999

NB CPO SWEDEN

37,000

2008

C/M

BRO JOINVILLE

13,000

1993

100

NB CPO GERMANY

37,000

2008

C/M

FURENÄS

13,000

1998

C/M

NB CPO FINLAND

37,000

2008

C/M

BRO JUNO

14,350

1999

100

NB CPO NORWAY

37,000

2008

C/M

BRO JUPITER

14,350

1999

100

NB CPO RUSSIA

37,000

2008

C/M

BRO DELIVERER

14,750

2006

100

NB CPO ITALY

37,000

2008

C/M

BRO DESIGNER

14,750

2006

100

NB CPO ENGLAND

37,000

2008

C/M

BRO DISTRIBUTOR

14,750

2006

100

BRO CATHERINE

44,800

1997

100

BRO DEVELOPER

14,750

2007

100

BRO CECILE

44,800

1997

100

EURO SWAN

14,800

1991

C/M

CILAOS

44,900

1996

FURE STAR

15,000

1995

BRO CAROLINE

45,000

1996

100

FURE SUN

15,000

1995

BRO CHARLOTTE

45,000

1997

100

FIONIA SWAN

15,000

2005

C/M

BRO PREMIUM

45,000

1999

100

RAMONA

16,000

2004

C/M

BRO PROMOTION

45,000

1999

100

FURE NORD

16,000

2004

BRO ARTHUR

46,000

1995

100

FURE WEST

16,000

2006

C/M

BRO ALEXANDRE

46,000

1995

100

NAVIGO

16,600

1992

29,75

BRO ALBERT

46,000

1995

100

PETRO VARIO

16,600

2003

100

GAN-VENTURE

46,600

2006

T/C

BRO COMBO

16,600

2003

100

SETO EAGLE

47,000

2004

T/C

BRO ANTON

16,800

1999

100

GAN-VOYAGER

47,000

2007

C/M

BRO ATLAND

16,800

1999

GAN-VALOUR

47,000

2007

C/M

BRO AXEL

16,800

1998

100

GAN-VICTORY

47,000

2007

C/M

GAN-OCEAN

17,000

2007

C/M

GAN-SURE

51,000

2006

T/C

GAN-SWORD

17,000

2007

C/M

GAN-SHIELD

51,000

2006

C/M

BRO ANNA

17,000

2008

100

GAN-SPIRIT

51,000

2007

C/M

NB 064

17,000

2008

100

GAN-SABRE 51,000

2008

C/M

NB 053

17,000

2008

100

1) Reported as a finance lease.

C/M

GAN-SKY

17,000

2008

ALSTERSTERN

17,080

1994

C/M

HAVELSTERN

17,080

1994

C/M

Intermediate = 10–20 kdwt

RHEINSTERN

17,080

1993

C/M

Handy size = 20–40 kdwt

TRAVESTERN

17,080

1993

C/M

MR = 40–60 kdwt

DONAUSTERN

17,080

1995

C/M

ISARSTERN

17,080

1995

C/M

PROSPERO

18,000

2000

BRO SINCERO

18,000

2002

NB EDWARDS 137

19,500

2008

C/M

EVINCO

19,900

2005

Small = 5–10 kdwt

NB = Newbuilding B/B = Bareboat charter T/C = Time charter C/M = Commercial management

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

Broström puts safety first A modern fleet and a far-reaching quality and safety programme onboard and ashore make Broström a leading quality operator. The company is thereby well positioned to meet rising demands on quality, safety and the environment from both customers and authorities. Quality, safety and environmental concerns are often integrat-

Positive result of external controls

ed with each other in the shipping industry. Systematic quality

Broström and other players in tanker shipping are subject to

work leads to better safety, which in turn minimises the risk

continuous quality evaluations in the form of vetting con-

for accidents with an environmental impact. It also entails that

trols performed by the oil and chemical industries, the yearly

Broström, its owners and employees have a shared interest in

inspections conducted by the flag states, port state controls

these matters with authorities, customers and classification

(which are a matter of public record), and inspections per-

societies.

formed by the classification societies.

Quality – a success factor

tion equipment and routines, rescue equipment, fire-fighting

To maintain a steady and high level of service and quality,

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

Broström works according to a joint quality system that en-

crisis management routines, vessel construction and their

compasses uniform work models and a uniform level of quality,

general condition. In addition, controls are performed of crew

among other things. Moreover, all of Broström’s shipping

numbers and certification as well as of vessel logs and certifi-

operations are quality certified according to ISO 9001:2000.

cates. Shore-based operations are controlled through audits of

These controls encompass, among other things, naviga-

Since Broström takes responsibility for its customers’ transport needs, the company’s quality concept is broader than in

processes and routines. The average number of remarks per port state inspection

traditional shipping, where shipowners often concentrate on

for Broström’s vessels (including partners) was 1.03 according

the ownership and chartering of vessels. For Broström, quality

to the Paris MoU, compared with nearly three for the commer-

is not only a matter of vessel design, but also about ensuring

cial world fleet.

that customers’ cargoes are delivered to the right place at the right time, that cargo contamination is avoided, and that both

Increasingly higher levels of self assessment

the land- and sea-based organisations give customers the serv-

Broström also complies with the oil companies’ joint Tanker

ice and information they want.

Management Self Assessment (TMSA), whereby the compa-

How well Broström measures up to its customers’ expec-

nies themselves are responsible for evaluating and reporting to

tations is measured in customer surveys, assessment of key

a database, which the company’s customers can access to see

performance indicators (KPIs), and the results of controls

the results. This system of self assessment is complemented by

performed by the customers themselves.

spot checks by the oil companies.

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Age structure (share of fleet)

World tanker fleet older than 20 years

Nearly 70% of BrostrĂśmâ&#x20AC;&#x2122;s vessels are younger than 10 years, while nearly 60% of the worldâ&#x20AC;&#x2122;s tanker fleet is passed the 10-year mark.

In the small vessel segment, one in every three vessels in the world fleet is still older than 20 years.

TMSA is built upon four levels, where the first consists of the

Stricter rules welcome

stipulations prescribed by laws and other regulatory codes. The

The overarching international regulatory code for safety and

requirements then become increasingly stringent with each

environmental matters is issued by the UNâ&#x20AC;&#x2122;s International

subsequent level. Today BrostrĂśm meets level two, and its sights

Maritime Organisation. Other important bodies are the EU

are set on meeting level three.

and the maritime authorities in the countries called on by

Planning saves time and money

sification societies and Intertanko â&#x20AC;&#x201C; the trade organisation of

In addition to external controls and inspections, BrostrĂśm con-

the tanker shipping industry â&#x20AC;&#x201C; also play a key role in safety and

ducts its own evaluations of its vessels and routines both ashore

environmental work.

vessels or under whose flags they sail. The international clas-

and onboard. This work is conducted continuously as well as in

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

connection with planned dockings for technical maintenance

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

and upgrading of vessels.

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

BrostrĂśmâ&#x20AC;&#x2122;s vessels conduct planned dockings every 30

transports within the EU as well as for EU-flagged vessels

months on average. Altogether the number of days spent in

around the world. Stricter rules for transporting chemicals

docking/upgrades in 2007 was 678 (318). On account of its large

were introduced in 2007. These include, among other things,

fleet, BrostrĂśm can schedule dockings in a way that ensures

requirements that every vessel must have a chemical trans-

efficient utilisation of the fleet while minimising the number of

port certificate for transports of vegetable oils, methanol and

unplanned dockings. This saves both time and money.

MTBE. All of BrostrĂśmâ&#x20AC;&#x2122;s vessels already meet the provisions of these new rules.

Safety and the environment

Other areas in which stricter rules are anticipated include

BrostrĂśm governs safety and environmental matters in a Group-

the handling of ballast water and closed systems for cargo han-

wide Safety, Health and Environment (SHE) policy that sets

dling on small vessels.

minimum standards and requirements for reporting in a number of areas, including environmental emissions, incidents and ac-

Focus on reducing air emissions

cidents, and absences caused by illness and work injuries.

Oil spills are very rare in tanker shipping today. Through strict

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Breakdown of tanker fleet by hull type All of BrostrĂśmâ&#x20AC;&#x2122;s tonnage is double-hulled, compared with 71% for the world fleet in BrostrĂśmâ&#x20AC;&#x2122;s size segment.

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

reporting routines, Broström has complete control over every

the environmental performance of shipping compared with

single spill incident. In 2007 no spills were made of bunker oil

other modes of transport. Today shipping accounts for only 2%

or cargoes from any of Broström’s vessels.

of total CO2 emissions. The European Commission estimates

Focus has instead been concentrated on vessel exhaust emis-

that shipping exhaust emissions amount to approximately 10g

sions. To reduce emissions of sulphur, starting in November

of CO2 per tonne-kilometre, compared with 20g for rail and 90g

2007 only vessels that use low-sulphur bunker oil are allowed

for road transport. Shipping is also better than both rail and road

to traffic the Baltic Sea, the North Sea and the English chan-

transport with respect to nitrogen oxide emissions. While the

nel. Rules aimed at reducing emissions of carbon dioxide and

shipping industry’s nitrogen oxide emissions amount to approxi-

nitrogen oxides have also been in place for some time.

mately 0.3 g per tonne-kilometre, the corresponding figure for

In 2007 Intertanko proposed a general changeover to diesel fuel. However, other players advocate technical solutions for

rail and road transport is 0.5 g and 1.0 g, respectively. Moreover, compared with other modes of transport, ship-

reducing emissions and a transition to land-based energy supply

ping is highly energy-efficient. A small product tanker consumes

when vessels are in port.

only about 0.3 megajoules per tonne-kilometre, compared with 0.6 megajoules for rail and 0.7-1.2 megajoules for road transport.

Shipping better than the alternatives

From a socioeconomic standpoint as well, shipping offers major

The trend toward more stringent rules will further improve

advantages compared with other modes of transport, including very limited external costs in the form of noise, environmental impact and accidents.

“ Broström is a company with many opportunities”

Broström investing in a better environment In 2007 Broström continued its investments in everything from vessels to its employees and organisation. In August the company gathered all persons responsible for quality, safety and environmental matters at subsidiaries as well as business partners in a joint conference. This initiative was the first step in an even closer co-operation between Broström and

“As a financial manager, much of my work involves ensuring smooth operation of the accounts department, managing the accounts and reviewing financial reports. Accuracy and meeting deadlines are important for success in my work. Previously I worked at Petroships Group, and I continued my service when Broström acquired the company in May 2007. As a result of the acquisition, there are now many changes in the organisation and it is a major challenge for me to manage them. “My studies did not include any maritime specialisation. It was rather my interest in the maritime sector that brought me to the shipping industry. In my view, being a part of a major international company provides the resources to develop the Singapore business further. It also offers great career opportunities for me to learn new processes and skills and to gain knowledge of other exciting cultures. I am proud to be part of the Broström family and look forward to contribut ing to the success of Broström.”

its business partners. In connection with the establishment of a new, function-oriented organisation, Broström established a joint Group function to further strengthen the work on quality, safety and environmental issues. In addition, Broström continued its training of all onboard staff in vetting matters (see page 25). During the year, Broström started work on installing nitrogen generators on a number of vessels, thus enabling the closed handling of methanol cargoes. And for some time a large number of Broström’s vessels have been prepared to be fitted with catalytic exhaust cleaning systems. Further, Broström’s new vessels have fuel tanks that allow them to handle several different fuel grades, which means that they will be able to use more environmentally friendly fuels once the conditions exist.

Vessel security standards Vessel security involves protection against external threats such as terrorist attacks, hijackings and maritime piracy. This work is governed by the IMO’s International Ship and Port Facili-

Ngo Sook Ching, Financial Manager, Broström Tankers Singapore

ties (ISPS) code, which sets standards for vessel equipment and requires every vessel to have routines in place and a specially trained crew member who is responsible for these matters. All of Broström’s vessels meet the requirements of the ISPS code.

Broström is installing systems for continuous Internet access on all vessels owned by the company, helping crews stay in touch with daily life back home by both e-mail and Web access.

Roadmap shows the way to joint IT structure for better business benefit In pace with Broström’s growth and increasing co-operation between subsidiaries, the need of a joint IT structure has increased. This need has grown even stronger with the introduction of a new function-oriented organisation starting on 1 January 2008. To meet this growing need, in 2007 Broström launched Roadmap, a project for establishing a joint IT structure. Previously Broström’s subsidiaries worked relatively on their

has improved communication with customers, authorities

own, and the exchange between the various offices was limited.

and Broström’s shore-based organisation. Another advantage

This did not entail any major demands on harmonisation of the

of wireless systems onboard is that the vessels can be more

Group’s IT systems. Most important was that every company

easily controlled by distance from land and that updating

could maintain contact with their respective customers, vessels

and certain services can even be provided from land. It

and partners, and with the head offices in Göteborg.

is even possible to conduct distance training courses and

However, in pace with Broström’s growth, the need for interaction between the various subsidiaries has grown. This concerns

teleconferences. In pace with rising competition for skilled seamen, 24-hour

everything from exchanging information to the ability for the

Internet access has become a decisive factor in recruiting new

offices to operate each other’s vessels, depending on demand.

employees. For vessel crews, it entails closer contact with family

This puts entirely new demands on the ability of the IT structure

and friends ashore while also providing access to newspapers

to meet the company’s commercial needs.

and other news channels. After starting with vessels in European traffic, in 2007 Bro-

Roadmap to better business

ström also began installing wireless systems on the company’s

In 2007 Broström therefore launched the Roadmap project for

vessels in Asia and the Atlantic. Installation of systems is taking

establishing a joint IT structure. The project is a so-called enter-

place in step with planned dockings for vessel maintenance.

prise architecture project, which means that its starting point is a mapping of existing business processes and information needs,

Investments that must be protected

as well as of what is needed to achieve a desired position.

Broström’s IT structure covers both the shore and sea-based

The aim of the Roadmap project is not to establish a common

organisations. Onboard vessels are systems for documentation,

standard for every detail. Instead, it will result in a platform for

reporting, navigation and communication. The shore-based

Broström’s entire business and indicate the direction for future

organisation takes care of systems for communication and

IT investments and how the company should set priorities among

information exchange as well as systems that manage critical

its various needs.

business processes. Broström works actively with IT security. This work is fo-

Continuous Internet access everywhere

cused primarily on blocking spam, virus attacks and intrusions.

In 2007 Broström also continued with its installation of systems

In Broström’s opinion, its IT security and reliability are good,

that provide continuous Internet access for the vessels that are

and the company has not suffered from any serious operating

technically operated by Broström. Continuous Internet access

disruptions or incidents in recent years.

S E 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 ate m e nt s SEK m Net sales Operating profit (EBIT) Net financial items

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

3,504.0

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

663.6

771.7

812.4

403.8

355.1

324.7

580.2

499.1

90.3

158.0

-213.2

-191.9

-92.3

-79.1

-117.0

-185.4

-145.8

-180.0

-120.2

-128.7

Profit after net financial items

450.4

579.8

720.1

324.7

238.1

139.3

434.4

319.1

-29.9

29.3

Tax on profit for the year

-23.9

-76.8

-97.2

162.0

-47.9

-42.4

-122.8

-104.3

1.2

-11.6

Consolidated profit for the year

426.5

503.0

622.9

486.7

190.2

96.9

311.6

214.8

-28.7

17.7

6.7

7.9

11.8

8.5

11.4

1.7

3.9

3.3

0.5

1.9

Of which, minority interest

Net sales

weaker dollar.

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

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

Group in Singapore and the addition of a large number of

growth target in the form of net sales including partners is 20%.

vessels to the fleet. However, this was partly offset by the weak

During the last three years, average annual growth in sales has

freight market and the weak US dollar.

In 2007 sales were buoyed by the acquisition of Petroships

been 3.7%. Net sales have increased both organically and as a result of acquisitions. In 1998 Broström acquired Van Ommeren’s

Operating overhead

product tanker operations and 40% of Iver Ships. The decrease

Broström’s operating overhead consists of variable costs

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

(mainly port calling fees, bunker charges and other contract

market caused by the Asian crisis, among other things. After

expenses), operating expenses (mainly charter rates and vessel

1999, this was followed by a strengthening of the freight market

operating and maintenance costs), personnel costs and depre-

and a strong US dollar, at the same time that Broström expanded

ciation. The proportional relation between the various types

its fleet with a large number of newly built vessels.

of operating overhead is relatively stable.

The freight market has thereafter become characterised by

a sensitive balance between supply and demand, where even

Earnings

minor events have a large impact on freight rates.

Broström’s earnings trend has essentially reflected the growth

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

A cold winter and a number of other factors that contributed

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

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

2003. During that same year, Broström increased its ownership

The average return on capital employed is shown in the table

in Iver Ships. The market conditions remained favourable in

below. Broström’s target is that the return on capital employed

2004, although a weaker dollar had a negative impact. The dol-

should exceed the interest rate of a 10-year US government

lar recovered in 2005 at the same time that Broström acquired

bond during the past three years plus a risk premium of 5%. For

Nordtank and the outstanding 50% stake in Iver Ships. This

2007 this corresponded to a target of 9.4%.

added a large number of vessels to the fleet.

Sales in 2006 were favourably affected by the acquisitions

made in previous years and new partnerships, while some

2005-2007 (3 years)

sales volume was lost as a result of the divestment of the Bulk

2003-2007 (5 years)

10.9

Logistics (2005) and Travel Agency (2006) business areas and a

1998-2007 (10 years)

10.9

Sales and earnings per quarter

SEK m

12.3

2007

2006

2005

Q 4

Q 3

Q 2

Q 1

Q 4

Q 3

Q 2

Q 1

843.7

819.2

915.1

926.1

802.4

849.8

769.3

964.6

1,127.5

Operating profit (EBIT)

45.8

97.8

301.9

218.1

94.7

213.3

112.7

351.0

310.0

Profit after net financial items

- 9.5

40.7

246.8

172.5

42.2

162.6

64.9

310.1

280.4

450.4

502.0

623.9

442.0

579.8

818.0

748.0

868.6

720.1

Net sales

Moving 12 months

Return on capital employed

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Net debt and debt/equity ratio

Equity/assets ratio II

BrostrĂśmâ&#x20AC;&#x2122;s net debt increased in 2007 as a result of the companyâ&#x20AC;&#x2122;s expansion. Despite this, BrostrĂśm still has a very strong financial base.

The equity/assets ratio II has averaged 34.4% during the last three years, which is clearly above BrostrĂśmâ&#x20AC;&#x2122;s target.

Co n d e n s e d balan ce s h e e t s SEK m Non-current assets

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

6,690.7

6,111.4

5,787.2

4,061.5

3,984.5

4,157.3

3,611.0

3,173.5

3,333.6

3,061.1 482.7

Current assets excluding liquid assets

630.3

556.0

646.9

524.4

717.7

565.3

602.2

649.5

464.8

Liquid assets and short-term investments

1,174.4

1,283.4

1,480.5

954.9

944.6

971.8

1,150.5

598.0

432.8

651.2

Total assets

8,495.4

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

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

2,499.1

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

14.8

29.5

30.7

160.3

230.6

250.9

237.0

221.0

Equalisation reserve

114.1

149.7

205.3

107.3

105.9

143.3

72.9

81.2

116.1

162.0

Deferred tax

478.4

481.0

473.1

344.5

561.5

520.4

495.9

353.5

308.6

315.3

4,182.9

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

Debenture loan

Non-current liabilities and provisions Current liabilities

1,206.1

715.0

695.1

766.0

781.4

741.2

771.7

636.8

568.8

559.9

Total shareholdersâ&#x20AC;&#x2122; equity and liabilities

8,495.4

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

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

Deferred tax pertains primarily to the difference between

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

taxable and book depreciation of vessels.

mercial operation, with vessel ownership in many cases that is shared in full or in part with external partners.

Liabilities in the balance sheet consist primarily of:

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

2007

2006

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

Liquid assets and short-term investments, %

Current assets, %

2007

2006

Non-current liabilities and provisions, %

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

Current liabilities, %

Deferred tax, %

The average equity/assets ratio and debt/equity ratio are shown in the table below. One of BrostrĂśmâ&#x20AC;&#x2122;s financial targets

In 1998 BrostrĂśm acquired Van Ommerenâ&#x20AC;&#x2122;s product tanker

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

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

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

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

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

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

companyâ&#x20AC;&#x2122;s ability to generate stable cash flows.

Stockholm Stock Exchange added SEK 215 m in equity. Following the delivery of newbuildings and vessel acquisi-

Equity/assets ratio II, %

Debt/equity ratio (multiple)

tions, non-current assets increased rapidly between 2000

2005-2007 (3 years)

34.4

1.2

and 2002. The same applied for 2005, 2006 and 2007, when

2003-2007 (5 years)

34.6

1.2

a large number of vessels were added to the BrostrĂśm fleet.

1998-2007 (10 years)

32.7

1.3

Shareholdersâ&#x20AC;&#x2122; equity increased between 2003 and 2005, mainly due to new issues in connection with vessel purchases and the addition of retained earnings.

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

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

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

Operating activities

622.7

755.4

776.5

334.5

420.6

419.6

612.1

371.4

52.1

165.3

Change in working capital

123.2

98.3

-157.2

95.1

-76.7

-5.9

174.5

-109.6

26.9

184.5

Cash flow from operating activities

745.9

853.7

619.3

429.6

343.9

413.7

786.6

261.8

79.0

349.8

-1,121.1

-1,594.8

-491.3

-441.7

0.7

-517.6

-218.5

85.0

-523.7

393.0

Cash flow from investing activities Cash flow from financing activities

570.6

961.8

457.2

92.1

-239.9

116.9

61.2

-154.8

168.0

-458.1

-261.7

-269.1

-172.8

-131.6

-87.1

-122.5

-57.6

-7.2

-14.4

-13.3

Translation difference

â&#x20AC;&#x201C;

1.1

-16.3

-41.3

-36.5

49.8

-39.4

Cash flow for the year

-66.3

-48.4

412.4

-51.6

18.7

-125.8

530.4

148.3

-241.3

232.0

1,283.4

1,480.5

954.9

944.5

971.8

1,150.5

598.0

432.8

651.2

419.2

â&#x20AC;&#x201C;

25.7

21.7

â&#x20AC;&#x201C;

-42.7

- 148.7

113.2

36.3

-67.7

-52.9

22.1

16.9

22.9

â&#x20AC;&#x201C;

1,174.4

1,283.4

1,480.5

954.9

944.5

971.8

1,150.5

598.0

432.8

651.2

Dividend to shareholders and minority holders

Liquid assets at start of year Liquid assets pertaining to change in consolidation Exchange rate difference in liquid assets Liquid assets at year-end

During the ten years that BrostrĂśm has presented cash flow

A stable and positive cash flow is a prerequisite in order for

statements, average cash flow from operating activities has

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

been SEK 488 m. Owing to stable cash flow from operating

shareholders. During its time as a listed company, BrostrĂśm

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

has paid a dividend every year. The average dividend, includ-

substantial vessel investments with own funds. These invest-

ing the proposed dividend for 2007, has been SEK 2.08 per

ments are the main reason for the substantial outflow of funds

share, corresponding to an average dividend yield of 6.27%.

from investing activities. In 1998 and 2003 BrostrĂśm carried

The dividend per share takes into account the 2:1 split that

out a number of vessel sales and repaid loans in connection

was carried out in 2007.

with these, which resulted in positive cash flows from investing activities and negative outflows from financing activities.

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Liquid assets and cash flow

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

BrostrĂśmâ&#x20AC;&#x2122;s business generates stable cash flows, due in part to the companyâ&#x20AC;&#x2122;s focus on transports of affreightment.

BrostrĂśm strives to pay stable dividends. According to the dividend policy, the dividend shall amount to 40%-50% of profit after tax.

B RO S T RÖ M ’ S S H A RES

Broström’s shares Broström’s shares are traded on the Stockholm Stock

Svensson Invest AB, Shipinvest Intressenter AB, the Per

Exchange, Nordic Mid Cap List, Energy sector. The shares

Dreijer family (through the company Lunaria AB), Lennart

were introduced on the Stockholm Stock Exchange O-list

Simonsson and institutional investors. At year-end 2004, the

on 17 June 1998 and were quoted on the Attract 40 list

shares owned up until that time by Shipinvest Intressenter

between July 2002 and 1 October 2006. A round lot is 100

were sold to that company’s shareholders. Shipinvest Int-

shares. The abbreviation is BRO B and the ISIN code is

ressenter thereby ceased to be an owner of Broström.

SE0000254880.

Foreign ownership on 31 December 2007 amounted to 23.7% (20.0) of the share capital and 15.1% (13.5) of the votes.

Trading volume and price trend

Total institutional ownership (according to the definition

Broström’s shares had weak performance in 2007, and the

provided by SIS Ägarservice) was 37.1% of the capital (35.7)

share price fell by 34%. Trading volume during the year

and 42.4% of the votes (41.5). The Board and management

was 51.2 million shares (77.8), for a total value of SEK 4,253

(including related companies) together control 26% of the

m (5,394), corresponding to a turnover rate of 102% (128).

number of shares and 47% of the number of votes.

Average trading volume per business day was 204,956 shares (310,102), or SEK 17,012 thousand (23,640). Broström’s

Agreement between holders of A-shares

shares closed the year at SEK 49.80 (75.00), and the market

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

capitalisation, including A-shares, was

concerning consensus on the election of board members and

SEK 3,277 m (4,935).

that the A-shares shall carry a right of first refusal. This agreement is described in more detail in the Corporate Governance

Share capital

Report on page 76 of this Annual Report.

Broström’s share capital is described in the tables on page 39 and in the Corporate Governance Report on page 76.

Share repurchases On 31 August 2007 Broström AB decided to begin exercising

Ownership

the mandate given by the Annual General Meeting on

On 31 December 2007 Broström had 17,428 shareholders

3 May 2007 to repurchase up to two million of the company’s

(18,969), a decrease of 8% compared with the preceding year.

B-shares, corresponding to approximately 3% of the total

Since the stock market introduction in 1998, a number

number of shares in the company. Repurchases have been

of ownership changes have taken place. In May 2002,

made starting on 31 August 2007 and can continue through

Broström’s former principal owner, Vopak, sold its entire

28 April 2008. The aim of the repurchases is to adapt the

holding to a number of institutions. Two years later, Siem

company’s capital structure to its capital requirement and

Industrikapital AB sold all of its shares in Broström to Arvid

thereby contribute to higher shareholder value and enable

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Trading volume per business day

Number of shareholders

Trading in Broström’s shares decreased somewhat in 2007 following a steady rise for four years.

Broström had 17,428 shareholders on 31 December 2007.

B RO S T RÖ M ’ S S H A RES

acquisitions of companies, vessels or businesses through pay-

Investor relations at Broström

ment with treasury shares.

Broström aspires to maintain good relations with all shareholders. In 2007 the company participated in a large number of stock

Stock split

market and customer meetings at banks, as well as at the “Stora

On 3 May 2007 Broström’s Annual General Meeting approved

Aktie- och Fonddagen” in Göteborg, an annual investor confer-

the Board’s proposal to amend the Articles of Association in

ence arranged by the Swedish Shareholders’ Association.

order to enable a stock split. This entailed the split of each

existing share into two new shares. The split was carried out

the year, Broström met with analysts and other professional inves-

by Värdepapperscentralen on 4 June 2007. Comparison values

tors, either on location in Stockholm or via teleconferences. On

regarding the number of shares in previous years have been

these occasions Broström also held webcasts, making the informa-

recalculated in accordance with IFRS.

tion readily available for all shareholders on its website. Broström’s

In connection with the publication of financial reports during

management also conducted road shows during the year in Boston,

Dividend policy and proposed dividend

London, New York, Oslo, Copenhagen, Zurich and Geneva,

The Board’s aim is that the dividend should reflect the com-

among other locations. A list of analysts who monitor Broström is

pany’s current level of profit, financial position and capital

provided on Broström’s website: www.brostrom.com.

requirement. In consideration of these factors, the aim is for

the dividend to be around 40%–50% of profit after tax. It is

company’s website. Broström also provides information on the

also the Board’s aim to maintain steady dividend development.

dates on which the company will be making presentations for in-

The Board proposes a dividend of SEK 3.00 per share (4.00) for

vestor associations, foreign and Swedish stockbrokers and banks.

Financial information about Broström is provided on the

2007, corresponding to 46% (22) of profit after tax.

Broström Logistics Index (BLX) Persons with insider status

During the years 1999-2007, Broström was the only listed

Trading in shares in a company in which a person has insider

Swedish company to publish its own share index. The aim of the

status is called insider trading. By law, such trading requires

Broström Logistics Index (BLX) was to facilitate an understand-

notification and must be reported to the Swedish Financial

ing and analysis of Broström and contribute to a correct valuation

Supervisory Authority. Broström is required to provide the

of the company’s shares.

Financial Supervisory Authority with the names of persons

Since most of the companies that were included in the BLX

who have insider information about Broström. These persons

have been acquired or delisted, Broström has decided to discon-

are required to notify any holdings of Broström shares that

tinue the index starting in 2008. In pace with Broström’s growth

they have and any changes in their holdings. Certain related

and increased knowledge about the company, the need of its own

natural and legal persons are also covered by the notification

share index has also decreased. For persons interested in compar-

requirement. A complete list of persons with insider status at

ing Broström with other companies, a list is provided below of

Broström can be found by visiting the Financial Supervisory

the world’s largest listed shipping companies.

Authority’s website: www.fi.se.

Listed shipping companies active in tanker shipping Company Stock exchange AP Möller/Maersk

Copenhagen

Market cap, SEK m February 2008 272,800

Website www.maersk.com

DS Norden

Copenhagen

26,933

www.norientpool.com

Teekay Corporation

New York

21,328

www.teekay.com

Frontline

Oslo & New York

19,065

www.frontline.bm

OSG

New York

14,167

www.osg.com

Torm

Copenhagen

13,510

www.torm.dk

Ship Finance International

New York

12,096

www.shipfinance.org

Tsakos Energy Navigation (TEN)

New York

8,035

Nordic American Tanker Shipping

New York

5,487

www.nat.bm

General Maritime

New York

4,669

www.generalmaritimecorp.com

Broström

Stockholm

3,348

www.brostrom.com

Knightsbridge Tankers

New York

2,809

www.knightsbridgetankers.com

www.tsakosgroup.com

B RO S T RĂ&#x2013; M â&#x20AC;&#x2122; S S H A RES

Shareholders (on 31 December 2007) Shareholder

Growth of share capital

Number of A-shares

Number of B-shares

Percentage of capital votes

Arvid Svensson Invest AB

2,075,968

10,027,692

18.4

29.6

1981

100

800

80,000

Dreijer families

1,469,908

3,122,210

7.0

17.1

1982 New issue

100

1,400

140,000

Odin Fonder, Oslo

6,023,800

9.2

5.8

1983 New/bond issue

58,600

100

60,000

6 000,000

1987 New issue

28,572

100

88 572

8 857,200

Year

Change in number of shares

Quota Total number Total value of shares share capital

600

BjĂśrnram family

343,680

458,157

1.2

3.7

Lennart Simonsson

192,084

412,540

0.9

2.2

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

Kenneth Nilsson

169,816

534,144

1.1

2.1

2,021,000

3.1

1.9

BrostrĂśm AB

Case

1,494,700

2.3

1.4

Michael HjortbĂśl

970,560

1.5

0.9

JP Morgan

803,061

1.2

0.8

Others*

35,677,864

54.1

34.5

Total

4,251,456

61,545,728

100.0

Sweden

4,235,456

45,977,136

76.3

84.9

16,000

15,568,592

23.7

15.1

Abroad

* Non-Swedish shareholders reported under this heading are nominee shareÂ holders, entailing that the individual shareholders are not officially registered.

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

32,898,592

65,797,184

1998 Split

2006 New issue 2007 Split

Shareholder categories (as per 31 December 2007) Owners

Number of shares

Number of votes

Percentage of capital votes

Legal entities

39,741,312

59,613,024

60.4

Natural persons

25,055,872

44,447,264

39.6

42.7

Total

65,797,184

104,060,288

100.0

57.3

Shareholders by size class (as per 31 December 2007) Size of holding

No of shares

No of shareholders

1 - 500

1,872,193

2.8

10,021

57.5

501 - 1,000

2,388,252

3.6

2,880

16.6

1,001 - 5,000

8,245,144

12.5

3,572

20.5

5,001 - 10,000

3,837,696

5.8

506

2.9

10,001 - 15,000

1,576,679

2.4

125

0.7

15,001 - 20,000

1,491,475

2.3

0.4

20,001 -

46,385,745

70.5

245

1.4

Total

65,797,184

100.0

17,428

100.0

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Price trend, BrostrĂśm B, 1 Jan. 2007â&#x20AC;&#x201C;31 Dec. 2007

Price trend, BrostrĂśm B, 17 Jun. 1998â&#x20AC;&#x201C;31 Dec. 2007

BrostrĂśmâ&#x20AC;&#x2122;s share price fell by 34% in 2007.

BrostrĂśmâ&#x20AC;&#x2122;s shares have clearly outperformed the General Index since 2001.

S hare data

Share data

2007

2006

2005

2004

2003

2002

2001

2000

1999

Share price at year-end (closing price paid), SEK

49.80

75.00

80.00

49.37

36.00

19.25

Highest share price during the year (price paid), SEK

79.50

89.50

81.75

51.75

36.75

27.00

Lowest share price during the year (price paid), SEK

43.20

62.50

45.13

34.00

17.35

Market capitalisation at year-end, SEK m

3,277

4,935

5,220

3,100

2,105

P/E ratio

7.7

9.9

8.5

6.0

P/EBITDA

3.1

4.4

4.8

P/EBIT

4.8

6.4

P/CE

4.3

5.7

Dividend yield, %

6.0

5.3

1998

21.00

9.20

5.85

6.05

21.00

10.00

8.00

17.50

15.50

8.50

4.65

5.50

1,118

1,196

530

337

349

11.7

3.9

2.5

negative

16.9

4.6

3.5

2.0

1.6

0.8

1.3

1.0

7.2

5.9

3.4

2.1

1.1

3.7

1.9

8.4

6.1

2.6

1.5

2.1

5.0

0.9

5.0

5.1

6.3

7.8

10.1

10.9

2.1

4.1

Price-related share data

Per-share data (SEK) EBITDA

16.06

17.01

16.54

10.82

10.26

9.46

13.16

11.61

4.39

6.21

EBIT (operating profit)

10.27

11.80

12.56

6.90

6.05

5.62

10.07

8.66

1.57

3.20

Profit after net financial items

6.97

8.86

11.13

5.54

4.09

2.41

7.54

5.54

-0.52

0.60

Profit for the year

6.50

7.57

9.45

8.17

3.07

1.64

5.34

3.67

-0.51

0.32

Profit for the year including dilution

6.50

7.57

9.38

7.55

3.04

1.64

5.31

3.67

-0.51

0.32

38.20

39.36

41.35

28.15

25.26

24.16

25.27

19.98

14.95

16.57

Shareholders’ equity Shareholders’ equity including dilution

38.20

39.36

41.07

27.90

25.11

24.05

25.10

19.98

14.95

16.57

Cash flow from operating activities

11.55

13.05

9.58

7.33

5.91

7.16

13.65

4.55

1.42

7.18

Cash flow for the year

-1.03

-0.74

6.38

-0.33

0.32

-2.18

9.20

2.58

-4.19

4.70

3.00

4.00

2.50

2.25

1.50

2.13

1.00

0.13

0.25

Proposed dividend

Number of shares outstanding At year-end Of which, treasury shares Average

65,797,184 65,797,184 65,245,684 62,789,612 58,479,976 58,055,976 57,631,976 57,631,976 57,631,976 57,631,976 2,021,000

–

Of which, treasury shares

1,212,158

–

Stock options outstanding

1,100,000

800,000

1,351,500

1,297,000

424,000

848,000

–

2,264

437,542

567,166

335,222

261,100

371,400

–

Dilutive shares At year-end including dilution

65,797,184 65,799,448 65,683,226 63,356,778 58,815,198 58,317,076 58,003,376 57,631,976 57,631,976 57,631,976

Average including dilution

65,797,184 65,398,078 65,131,382 59,141,600 58,575,114 58,064,326 58,003,376 57,631,976 57,631,976 49,372,446

Share data values for 1998-2006 have been recalculated for the 2:1 split that was carried out in June 2007.

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 of

depreciation.

shares including dilutive shares.

P/EBIT

EBITDA per share

Cash flow from operating activities per share

Market price at year-end divided by oper-

Operating profit before depreciation divided

Cash flow from operating activities, after change

ating profit per share.

by the average number of shares.

in working capital, divided by the average number

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 at

Profit after net financial items per share

year-end.

Profit after net financial items divided by

share. Net profit for the year less minority interests dilutive shares.

of shares.

number of shares.

the average number of shares.

–

65,797,184 65,395,814 64,693,840 58,574,434 58,239,892 57,803,226 57,631,976 57,631,976 57,631,976 49,372,446

K ey ratios

Key ratios

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

EBITDA margin, %

29.6

32.8

28.0

19.8

18.3

21.1

28.7

26.8

12.4

14.4

EBIT margin (operating margin), %

18.9

22.8

21.3

12.6

10.9

12.6

22.0

20.0

4.4

7.4

Profit margin, %

12.9

17.1

18.9

10.1

7.3

5.4

16.4

12.8 negative

1.4

Margins

Return metrics Return on: Capital employed, % Shareholders’ equity, % Total capital, % Working capital, %

9.8

11.3

15.9

9.9

7.5

7.2

17.7

16.2

5.2

8.3

16.3

18.6

27.1

30.0

12.4

6.7

23.6

21.0 negative

2.4

8.5

9.7

13.6

8.0

5.9

5.7

13.9

13.1

4.2

7.1

11.0

13.4

18.5

11.7

9.8

9.6

19.6

17.3

3.2

8.0

Capital structure Capital turnover rate, multiple

0.6

0.9

0.8

0.9

0.7

1.1

Debt/equity ratio, multiple

1.5

1.2

1.0

0.9

1.2

1.3

1.0

1.4

2.1

1.5

Interest cover ratio, multiple

2.7

3.8

5.7

4.2

3.4

1.8

2.8

2.3

0.9

1.2

Equity/assets ratio I, %

29.4

32.8

34.2

32.5

26.6

24.9

27.4

26.1

20.4

22.8

Equity/assets ratio II, %

30.9

35.0

37.2

38.0

31.9

30.9

32.6

32.3

27.4

30.5

Share of risk-bearing capital, %

36.6

41.1

43.2

44.2

42.5

40.9

42.4

41.0

35.7

39.5

Employees Net sales per employee, SEK 000s

2,905

3,274

3,785

3,231

3,136

3,113

3,145

2,608

2,064

2,204

Value-added per employee, SEK 000s

1,004

1,243

1,322

912

823

754

1,031

777

438

470

550

746

805

407

341

342

626

456

141

Operating profit per employee, SEK 000s

Appropriation of profits Dividend in relation to shareholders’ equity, %

7.9

10.2

9.7

8.9

6.2

8.4

5.0

0.8

1.5

Other Capital employed, weighted average, 1) SEK 000s

7,219

6,986

5,484

4,338

4,489

4,400

3,906

3,496

3,377

2,500

Capital employed, year-end, 2) SEK 000s

7,314

6,904

6,825

4,637

4,438

4,541

4,259

3,553

3,438

3,315

Working capital, 3) SEK 000s

6,260

5,772

5,521

3,760

3,563

3,666

3,107

2,818

2,947

2,681

Net debt, 4) SEK 000s

3,640

3,015

2,608

1,657

1,745

1,895

1,394

1,568

1,846

1,402

Average number of employees 5)

1,206

1,034

1,009

992

1,042

831

840

958

985

965

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/

Operating profit plus financial income in

Shareholders’ equity, debenture loans and

amortisation as a percentage of net sales

relation to average balance sheet total.

equalisation reserve in relation to balance

for the year.

sheet total.

Return on operating capital EBIT margin

Operating profit in relation to average

Share of risk-bearing capital

EBIT (operating profit) as a percentage of

working capital.

Shareholders’ equity plus debenture loans,

net sales for the year.

equalisation reserve and deferred tax in

Capital turnover rate Profit margin Profit after financial items as a percentage of net sales for the year.

relation to balance sheet total.

Net sales divided by average working capital.

Net sales per employee Debt/equity ratio

Net sales divided by average number of

Net debt in relation to shareholders’ equity.

employees.

Interest cover ratio

Value-added per employee

Profit after net financial items plus booked

Operating profit plus costs for employed

interest expenses in relation to interest

staff divided by the number of employees.

Return on capital employed Operating profit plus financial income including exchange rate differences of assets, in relation to average capital employed.

expenses.

Return on shareholders’ equity Profit for the year in relation to average share holders’ equity excluding minority interests.

Operating profit per employee 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 LYS I S

Risk factors and sensitivity analysis BrostrĂśmâ&#x20AC;&#x2122;s strategy of long-term contracts of affreightment and close customer relationships helps minimise the risks that are traditionally associated with shipping.

The financial risks that BrostrĂśm is exposed to consist prima-

Political factors

rily of currency and interest rate risks. These are described in

International trade regulations, various tax rules, and political

the Accounting principles section on page 58. Shipping is less

decisions regarding the environment and safety have an impact

sensitive to credit risk than other industries through the ability

on product and chemical tanker shipping. Environmental

to use marine liens.

legislation also has an impact, covering vessel design and operation as well as the employeesâ&#x20AC;&#x2122; competence and the companyâ&#x20AC;&#x2122;s

Global risks

routines onboard and ashore. Regulations and inspections are

Economic cycle dependency, political factors, competition,

growing increasingly stringent, and demand for transports

freight rates, oil prices, and risks associated with war and ter-

using older tonnage is expected to decline. This trend can be

rorism are the main global risks that BrostrĂśm is exposed to.

viewed more as an opportunity rather than a risk for a quality player like BrostrĂśm with a modern fleet and established

Economic cycle dependency

routines and Group-wide instructions for quality, safety and

Consumption of oil and chemical products is strongly related

the environment.

to the overall economic trend. This also applies to demand for

Trade restrictions and actions taken by countries to protect

transports, which affects BrostrĂśm. The effects of an economic

their domestic shipping are on the decline, which is leading to

decline are greatest on the global shipping segment and on the

increasingly freer global trade, with fewer trade policy inter-

spot market. In the smaller segments in which vessels typically

ventions. The tax-policy risk is also lower than in the past due

work within the oil and chemical industryâ&#x20AC;&#x2122;s internal distribu-

to greater consensus and competitive neutrality in the EU.

tion systems and under longer contracts of affreightment, the sensitivity is less. BrostrĂśm limits economic cycle dependency through its

Competition BrostrĂśm encounters competition from a large number of

strategy of working under contracts of affreightment and by

players both locally and globally. In general, the product and

operating primarily within its customersâ&#x20AC;&#x2122; distribution systems.

chemical tanker shipping industry has a large number of small

In addition, the companyâ&#x20AC;&#x2122;s global presence reduces its suscep-

players, which gives a fragmented competitive picture.

tibility to the economic trend in individual markets. The trend

In recent years, the number of new vessels in BrostrĂśmâ&#x20AC;&#x2122;s

in the European market has the greatest impact on BrostrĂśmâ&#x20AC;&#x2122;s

segment has increased. In time this could lead to pressure

sales and earnings.

on freight rates. At the same time, however, a large share of

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Exchange rates

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R I S K FAC TO R S A N D S EN S I T I V I T Y A N A LYS I S

the world fleet is still relatively old, and a third of vessels in

time, the consumption pattern changes, and demand for oil

BrostrĂśmâ&#x20AC;&#x2122;s segment lack double hulls. The rapid pace of new

products stored in depots rises. This, in turn, can give rise to

building and full orderbooks at the worldâ&#x20AC;&#x2122;s shipyards have also

greater demand for transport capacity in order to smoothen

led to a rise in newbuilding prices. This has also affected the

out regional imbalances in supply and demand for specific

second-hand market for new tonnage.

products as well as lead to longer transport distances.

Through its size and focus on contracts of affreightment, BrostrĂśm can meet rising competition through more effective

War and terrorism

utilisation of its modern fleet. Along with its strong financial

Supply of oil products can change quickly, since a large share

position, BrostrĂśm also has the opportunity to plan the reju-

of the worldâ&#x20AC;&#x2122;s oil is produced in regions with a relatively high

venation of its fleet for times when it is most advantageous to

risk of war. How this affects the need for transport is uncertain,

place orders, or buy or sell vessels.

however. The negative effects of lower supply and a global economic downturn caused by a war could be off set by greater

Freight rates

transports to and from various storage depots, and by an

Freight rates vary widely in product and chemical tanker ship-

increase in transport distances.

ping. For the most part, profit after net financial items changes

By taking all of the actions required by authorities and

in proportion to increases and decreases in daily earnings. The

customers, BrostrĂśm also lowers its risk of being subject to

fluctuations are greatest in larger tonnage segments, while

acts of terrorism. Through established routines onboard and

prices are more stable in smaller tonnage segments.

surrounding the vessels, BrostrĂśm meets the standards set by

BrostrĂśmâ&#x20AC;&#x2122;s strategy of maintaining a high proportion of long-term contracts reduces its sensitivity to fluctuating

the UNâ&#x20AC;&#x2122;s International Maritime Organisation and individual countries.

freight rates. In addition, BrostrĂśmâ&#x20AC;&#x2122;s dependence on individual markets has decreased in pace with the companyâ&#x20AC;&#x2122;s global

Operational risks

expansion.

Operating vessels always involves some level of risk. Other risks related to operations include risks associated with customer relations, employees and expansion.

Oil prices Oil prices have historically been characterised by considerable fluctuation. BrostrĂśm is mainly affected by changes in the

Customers

price of bunker oil. Sensitivity to bunker prices is limited by

By customer-related risk is meant the risk that a customer will

volume contracts which contain clauses that partly compen-

choose to stop working with BrostrĂśm or the risk of a customer

sate for large bunker price fluctuations. BrostrĂśm does not

not being able to meet its obligations toward the company. The

work with forward hedges of bunker prices.

latter risk is minimal in shipping, since the vessels and their

There is also some correlation between the price of oil and

cargoes can be used as collateral in marine liens.

demand for transport capacity. Demand tends to fall when the

spot price of oil is higher than the forward price. At the same

end its co-operation. Moreover, as a result of consolidation in

However, there is always the risk of a customer choosing to

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Interest rate trend (USD Libor 6 months)

Bunker prices (IFO 380)

US interest rates began falling in 2007, but interest rates are still higher than previous levels.

Most of BrostrĂśmâ&#x20AC;&#x2122;s contracts of affreightment contain clauses that compensate for increases in bunker prices.

R I S K FAC TO R S A N D S EN S I T I V I T Y A N A LYS I S

the oil and chemical industry, the conceivable effects of a lost

fostering a workplace where employees feel comfortable and

customer have increased somewhat. At the same time, Bro-

can develop professionally as well as personally (see page 25).

ström’s size today helps limit exposure to individual customers.

Moreover, all employees of the shore-based organisation and

The best way of minimising this risk is to conduct operations

onboard (including contract employees) are included in the

that meet or exceed the customers’ expectations. Broström

company’s profit-sharing system. In addition, all permanent

therefore works continuously on improving its work methods

employees ashore and at sea have been offered to participate in

and routines in an effort to maintain and develop both quality

Broström’s warrant programme (see page 79).

and effectiveness. In addition, the company is engaged in a continuous dialogue with its customers in an effort to receive

Risks associated with investments and expansion

timely feedback and detect any dissatisfaction.

The company’s financial position weakens when new vessels

are purchased or in connection with company acquisitions.

A smaller, but still serious risk, entails the prospect of any of

Broström’s vessels not passing the oil and chemical industry’s

However, this risk is mitigated through Broström’s growth

vetting controls. If this were to happen, the vessel concerned

strategy, which involves strategic partnerships and various

would not be able to conduct transport assignments for the

forms of structural deals. In these partnerships, Broström

major oil companies. Apart from the immediate loss of rev-

takes responsibility for the commercial operation of vessels,

enue, every sub-standard vessel would tarnish the Broström

while responsibility for technical operation and all or parts of

brand, which would entail significant costs over the long-term.

ownership lie with the partner. At the same time, this entails

an opportunity for Broström to acquire vessels that it has

To minimise this risk, Broström works actively on quality

and safety issues. This work is described on pages 30-32 of this

good knowledge about from its partners. Broström’s focus on

annual report.

commercial operation of vessels based on long-term contracts of affreightment also minimises the risk of speculative wrong

Vessel operation and insurance matters

investments in new vessels.

In addition to preventive work, Broström strives to minimise injuries sustained by employees and damage caused to custom-

Sensitivity analysis

ers’ property and the marine environment in the event an

Certain risks have a direct impact on Broström’s earnings. In

accident should occur, despite all preventive measures.

other cases, the effect is indirect and less predictable. There-

fore, in addition to the above-mentioned risks, the table below

Broström has taken out a level of insurance cover that is cus-

tomary for the industry. Vessels are insured for damage and loss

takes into account calculations of Broström’s sensitivity to

in an amount corresponding to their market value. Broström’s

changes in a number of central income and expense items. All

liability insurance (P&I) applies without limit, except for oil

calculations are based on isolated changes of the indicated

damage, where the maximum indemnification is USD 1 billion

factor.

per claim. In order to receive a Certificate of Financial Respon-

The third column shows how great the average change in

sibility (COFR) in the US pursuant to the Oil Petroleum Act

the respective factor would have been based on figures for

of 1990, Broström has contracted the services of the insurance

the past year. However, the freight rate and interest rate data

company SIGCO. Broström’s Group-wide insurance con-

are based on market levels, not on the freight rates or interest

tracts were taken out in 2003 and continue indefinitely, with

rates that apply for Broström’s operations.

premium renegotiation every 12 months. Premiums are based on claim and accident statistics. The contracts can be cancelled

Profit after net financial items

by either of the parties not later than 14 months before the end

Parameter

of the 12-month period after which the cancellation is to take

Freight rates/day

USD +/- 500

SEK +/- 36 m

effect.

US dollar exchange rate

SEK +/- 0.10

SEK +/- 12 m

Employee-related risks

Effect on profit

Bunker price +/- 10 %

SEK - /+ 60 m

Net sales +/- 1 %

SEK +/- 35 m

External costs +/- 1 %

SEK - /+ 21 m

Personnel costs +/- 1 %

SEK - /+ 5 m

and retain employees with a high level of professional expertise

Depreciation/write-downs +/- 1 %

SEK - /+ 4 m

and experience in a number of different areas. This applies not

Interest rates +/- 1 %-pt

SEK - /+ 30 m

In its operations, Broström is dependent on its ability to attract

least to customer contacts, where personal relationships are of vital importance. Broström is therefore actively committed to

Change

FI N A N C I A L S TAT EM EN T S

Directors’ report Operations Broström AB (publ) Sweden, reg. no. 556005-1467, with registered office in Göteborg, Sweden, is one of the leading logistics providers to the oil and chemical industry, focusing on industrial product tanker shipping and marine services.

Business development Market overview 2007 was characterised by a volatile freight market. The mild winter and well-filled stocks of refined oil products contributed to a weaker freight market during the first quarter of the year. Colder temperatures in the US and Europe brought a gradual improvement in the market in February and March. This trend was strengthened by strong demand for shipments of gasoline from Europe to West Africa as a result of production disruptions at refineries in Nigeria. The build-up of stocks in the US that was subsequently needed to meet demand for gasoline ahead of the seasonal rise in gasoline consumption during the summer months led to a sharp rise in import needs and contributed to favourable demand for shipments to the North American market during the second quarter. In Asia the year started out with a relatively strong freight market. This was followed by a period of lower demand for transport capacity due to warm weather in northeast Asia and numerous maintenance shutdowns of refineries in the region, among other things. The Southeast Asian market strengthened during the early part of the second quarter and remained at a relatively favourable level throughout the quarter. The third quarter was characterised by a steady weakening of the spot market. Apart from the usual seasonal decline in late summer, a number of refineries closed for maintenance. In addition, the freight market was affected by lower trading activity for refined oil products due to credit anxiety and uncertainty about movements in oil prices during the period. The market decline that began during the third quarter continued into the early part of the fourth quarter, when an extremely weak spot market was noted in essentially all markets. This was followed by a robust improvement in late October and November, and the year closed with a relatively strong spot market. The outlook for global demand for oil products in the world remains favourable. Shipments are increasingly being made over longer distances, giving rise to a greater need for tonnage, which is having a favourable long-term impact on the shipping sector. As a result of growing regional imbalances between supply and demand for various oil products, small disruptions in the production and distribution chain have a rapid impact on the freight market, and spot market prices for shipments can fluctuate sharply. The shipyards’ orderbooks continue to be very well-filled, and delivery times for newbuildings in Broström’s market segment are approximately three years. Newbuilding prices continue to be high, and no flattening of price levels in Broström’s segment has been noted. In the vessel segments in which Broström is active, singlehulled vessels still account for a third of the global fleet, which

means that the need to scrap vessels will be great for several years to come. The IMO’s requirement for double-hulled tonnage will take full effect in 2010. Development for Broström Broström continued to strengthen its positions in product and chemical shipping in 2007, and at year-end the fleet consisted of 86 vessels and 16 newbuildings scheduled for delivery, compared with 75 vessels and 18 newbuildings scheduled for delivery at year-end 2006. During the year, the freight market in Broström’s segment was highly volatile, which had a large impact on earnings during individual quarters. The weakening of the US dollar relative to the Swedish krona and the sharp rise in bunker oil prices – mainly during the second half of the year – had an adverse impact on earnings. The US dollar lost an average of 9% in value against the Swedish krona during the year. As planned during the summer months, and especially during the third quarter, a larger number of dockings took place than during the preceding year. These consisted of ordinary dockings for maintenance as well as for major upgrades of existing vessels to enable even better utilisation of existing capacity. Altogether this resulted in 678 days for docking/ upgrades during the year, compared with 318 days in 2006. Broström’s European and Atlantic traffic as a whole experienced stable development during the year, however, the decline in the spot market during the second half and the dockings/upgrades that were carried out had an adverse impact on earnings for the second half. Broström’s Asian traffic, which is undergoing strong expansion, grew during the year by four vessels in the 47,000–51,000 dwt size class and nine small and intermediate size product tankers ranging from 5,000 to 16,600 dwt through the acquisition of Petroships Group in Singapore. This company, whose name has been changed to Broström Tankers Singapore, represents a strategic broadening of Broström’s existing operations in Asia and a platform for continued expansion in this segment. Altogether this means that at year-end 2007, Broström operated a fleet of 22 vessels in Asia, compared with nine at yearend 2006. During the year, traffic developed well and capacity utilisation of the fleet was high. The expansion of the fleet has contributed strongly to this development. The general decline in the spot market mainly affected Asian traffic negatively in the large size segment. The small tonnage segment was not affected to the same extent by the decline in the spot market due to the design of contracts and the high level of business conducted under contracts of affreightment. Broström’s strategic focus on contracts of affreightment, where such business volume accounts for approximately 50% of total capacity over time, enabled the company to maintain a relatively high level of capacity utilisation during the year. The acquisitions made and new partnerships entered into in 2006 and 2007 are now increasingly contributing to higher fleet employment and improved capacity utilisation of Broström’s fleet, which is expected to have a gradually greater impact on Broström’s earnings. A central part of Broström’s growth strategy is to be active

FI N A N C I A L S TAT EM EN T S

and a driving force in consolidation in Broström’s market segment. The acquisition of Petroships is an example of this market consolidation. Broström believes that the consolidation in its market segment will continue in the years ahead, and Broström intends to remain active in this process, which may take place through company acquisitions and additional partnerships. Activity remained high at most ports at which the Broström Agency Network is represented. In addition to the favourable operating result, sales of shareholdings contributed to the company’s strong earnings. During the third quarter, the holding in Percy Tham i Oxelösund AB (50%) was sold for a gain of SEK 1.5 m, while the holding in Norrköpings Hamn & Stuveri AB (2.8%) was sold for a gain of SEK 10.9 m. 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 valuations have been commissioned for existing, owned vessels in the fleet, existing newbuilding contracts and existing call options on vessels that Broström has. These valuations were ordered from two external appraisal firms, and the average of these has been used as the value. As per 31 December 2007, the average value of these units in the Group exceeded the book value by approximately SEK 2.7 billion. Tonnage tax Broström’s European fleet sails primarily under Swedish, French and Dutch flags. For a number of years the French and Dutch fleets have been affiliated with the tonnage tax system in their respective countries, in accordance with the EU’s shipping policy. In Sweden a study on introduction of a tonnage tax was published in early 2006. The proposal set forth by the study calls for Sweden to also adopt the EU’s maritime policies and thereby achieve competitive neutrality with respect to other maritime nations within the EU. Since presentation of the study’s proposal, nothing has happened in principle and no decisions have been made. Nor has any clear indication been provided by the authorities concerned that would give reason to believe that Sweden will be adopting a tonnage tax. The lack of a tonnage tax system for Swedish shipping, which if adopted would result in competitive neutrality with respect to other EU countries, renders impossible long-term investments in vessels sailing under the Swedish flag in the market segments in which Broström is active. Against this background, Broström does not intend to operate its newbuildings on order or acquired vessels under the Swedish flag. These vessels will instead operate mainly under another EU flag. Of the total deferred tax liability on the balance sheet as per 31 December 2007, amounting to SEK 478.4 m, SEK 437.2 m is attributable to the Swedish shipping operations.

Risks and uncertainties The risks that affect Broström in its operating environment are economic cycle dependency, freight rates, political factors, oil prices, and risks associated with war and terrorism. Operational risks include vessel operations, risks associated with expansion and investment related to vessel values, and risks related to employees.

In the course of its operations the Group is exposed to various financial risks: market risk, credit risk, liquidity risk, currency 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. For further information, please refer to the “Risk factors and sensitivity analysis” section on page 42.

Significant developments after year-end In January 2008 the GAN-SABRE (51,000 dwt) was delivered to Dünya Shipping. The vessel is now included in Broström’s commercial fleet of a total of 14 Medium Range (MR) tankers for transport of petroleum products in Asia. In February 2008 the BRO ANNA (17,000) was delivered to Broström. The vessel is the third in a series of six that are being built in Turkey in partnership with Dünya Shipping. In addition to the BRO ANNA, Broström will take delivery of two vessels later in 2008.

Consolidated sales and earnings Consolidated net sales for the year amounted to SEK 3,504.0 m (3,386.1, of which 95.5 pertained to sold subsidiaries). The share in associated companies’ profit was SEK 11.9 m (15.0), and operating profit was SEK 663.6 m (771.7). The figures for the year include a capital gain of SEK 14.3 m (126.5) on sales of vessels and operations, and dissolution of negative goodwill related to the acquisition of Petroships Group of SEK 117.2 m (0). Net interest expense amounted to SEK -210.1 m (-186.0). Net financial items amounted to SEK -213.2 m (-191.9), which resulted in a profit of SEK 450.4 m (579.8) after net financial items. The return on capital employed was 9.8% (11.3). Tax expenses during the year amounted to SEK -23.9 m (-76.8), corresponding to 5.3% (13.2) of profit before tax. Paid tax amounted to SEK -3.0 m (-4.4).

Future outlook The start of 2008 has been characterised by a volatile spot market, and the view is that the spot market will continue to be highly volatile from time to time. As a result of investments and acquisitions carried out in recent years, as well as partnerships entered into, Broström’s strategic market position has been further strengthened going into 2008 and forward. The underlying long-term trend for Broström’s market segments is judged to be continued positive, even though fluctuations may take place from time to time. The oil energy market today is essentially in balance, and it does not appear that the expansion of refinery capacity, particularly in Asia, will change this relationship in the years ahead. However, as a result of this, it is expected that shipments will take place over ever-greater distances and that regional imbalances will widen. The rapidly growing Chinese economy, US oil needs and Russian exports of oil over the Baltic Sea are also contributing to high demand for shipments of oil and chemical products. 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.

FI N A N C I A L S TAT EM EN T S

Starting on 1 January 2008, a new functional organisation was introduced at Broström. The goals of this functional organisation are to facilitate continued growth, ensure uniform levels of quality no matter where in the world operations are conducted, take better advantage of the aggregate competence within the Group and thereby continuously work towards improving best practices, increase Broström’s attraction as an employer, and increase flexibility and capacity utilisation of the total fleet. The functional organisation also creates better opportunities to ensure that strategies and objectives can be made even clearer – both internally and externally – and thereby contribute to the continued building of the Broström brand. Further information on the functional organisation is provided in the Corporate Governance section on page 78.

Investments and divestments Total investments within the Group during the year amounted to SEK 1,082.1 m (1,687.5). Divestments totalled SEK 107.5 m (390.7). Of total investments, SEK 721.4 m (1,682.0) pertained to vessels and newbuilding contracts. In addition, SEK 324.9 m has been invested indirectly in vessels through the acquisition of Petroships Group.

Acquired and newly delivered vessels in 2007 Name

Built

Dwt

Ownership

Petroships Group is included in Broström’s income statement as from 1 May 2007. Broström’s acquisition of Petroships Group is expected to add approximately SEK 200 m in annual net sales to Broström from the five acquired wholly owned vessels. Earnings from the partly owned vessels in which Broström’s stake is less than 50% are reported as a share in profit of associated companies. The fair value of property, plant and equipment has been calculated as an average value of external appraisals of the vessels conducted at the time of acquisition. The acquisition has given rise in the accounts to dissolution of negative goodwill in the amount of SEK 117 m, which is reported under other income. In late July 2007 Broström took delivery of the first vessel, the GAN-OCEAN (17,000 dwt), in a series of six vessels that are being built at a shipyard in Turkey. The second vessel in this series, the GAN-SWORD, was delivered in October. Both of these vessels are owned by Broström’s partner Dünya. Broström and Dünya will each own three of the vessels.

Investments in vessels already included in the fleet Name

Built

Dwt

Ownership

BRO GOTHIA

2003

7 100

50%

Partner Thun

BRO GOLIATH

2004

7 100

50%

Thun

BRO ERIN

2004

37 000

100%

Partner

PETRO IMTRES

1998

5 000

100%

PETRO EASKEM

1998

5 000

100%

PETRO OPTI

1995

7 500

44%

Fin. investors

PETRO VENTURE

1995

7 500

44%

Fin. investors

BRO CONCORD

1995

12 200

100%

PETRO RANGER

1993

12 400

C/M

Fin. investors

PETRO FOREMOST

1999

12 600

44%

Fin. investors

BRO DEVELOPER

2007

14 500

100%

BRO COMBO

2003

16 600

100%

PETRO VARIO

2003

16 600

100%

GAN-OCEAN

2007

17 000

C/M

Dünya

GAN-SWORD

2007

17 000

C/M

Dünya

GAN-VOYAGER

2007

47 000

C/M

Dünya

GAN-VALOUR

2007

47 000

C/M

Dünya

GAN-VICTORY

2007

47 000

C/M

Dünya

GAN-SPIRIT

2007

47 000

C/M

Dünya

C/M=Commercial Management

The GAN-VOYAGER, the GAN-VALOUR and the GAN-VICTORY (all 47,000 dwt), and the GAN-SPIRIT (51,000 dwt) were delivered during the year and are all operating in Broström’s Asian traffic. These vessels are owned by Broström’s partner Dünya. The BRO DEVELOPER (14,750 dwt) was delivered to Broström in February 2007 from the shipyard in China. In February, Broström entered into a long-term partnership with the German shipowner Reederei Claus-Peter Offen, which will result in a doubling of Broström’s commercial fleet in Europe in the 37,000 dwt size segment. The eight new vessels will be delivered successively in 2008, starting in April. In May Broström also reached an agreement to acquire Petroships Group, a group of companies in Singapore and Malaysia that operates a fleet of nine small and intermediate-size product tankers ranging from 5,000 to 16,600 dwt in Southeast Asia. The acquisition entails that five vessels are wholly owned and three are partly owned. The vessel that was operated under commercial management was sold in 2007 by its owners.

In May 2007, Broström and its partner Erik Thun entered into an agreement to acquire the two chemical and oil product tankers MARISP (name changed to BRO GOTHIA) and MARELD (name changed to BRO GOLIATH) (both 7,100 dwt, built in 2003 and 2004, respectively). Both vessels have been commercially operated by Broström for more than two years. Broström and Erik Thun each own 50% of the respective vessels, and delivery took place at the end of August and start of September, respectively. In December 2007 the HUNTESTERN (37,000 dwt) was acquired and subsequently renamed as the BRO ERIN. The acquisition was made under the terms of an option that Broström signed in August 2006 in connection with the acquisition of two vessels that are now named the BRO EDGAR and the BRO ERIK. The change in value in vessel prices entails that the option price that Broström paid for the vessel was slightly more than 20% lower than the vessel’s current market value.

Newbuildings on order

Built

Dwt

Ownership

BRO ANNA

Name

2007

17 000

100%

Partner

BRO AGNES

2007

17 000

100%

BRO ALMA

2007

17 000

100%

GAN-SABRE

2008

51 000

C/M

Dünya

GAN-SKY

2008

17 000

C/M

Dünya

CPO FRANCE

2008

37 000

C/M

Offen

CPO SWEDEN

2008

37 000

C/M

Offen

CPO GERMANY

2008

37 000

C/M

Offen

CPO NORWAY

2008

37 000

C/M

Offen

CPO RUSSIA

2008

37 000

C/M

Offen

CPO ITALY

2008

37 000

C/M

Offen

CPO FINLAND

2008

37 000

C/M

Offen

CPO ENGLAND

2008

37 000

C/M

Offen

NB EDWARDS

2008

19 500

C/M

Donsötank

NB 386

2009

7 500

50%

Thun

NB 387

2009

7 500

50%

Thun

FI N A N C I A L S TAT EM EN T S

Vessels that left the fleet in 2007 Name

Built

BRO TRADER

Financing

Dwt Ownership

1988

14,320

100%

During the year the Groupâ&#x20AC;&#x2122;s borrowings were affected by changes in the fleet. One newly delivered vessel, the acquisition of Petroships Group, investments in vessels that were previously included in the fleet under Commercial Management assignments, and current newbuildings were financed. In addition, loans were dissolved in connection with the sale of two 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 197.7 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 decreased during the year from 5.4% at year-end 2006 to 4.6% on the balance sheet date.

Partner

BRO TRANSPORTER

1989

14,400

77.5%

VINGA HELENA

1985

6,200

C/M

Fin. investors Swedia

PETRO RANGER

1993

12,400

C/M

Fin. investors

On 2 July 2007 BrostrĂśm sold its 50% stake in the ship agency Percy Tham i OxelĂśsund AB. The sale generated a pre-tax gain of SEK 1.5 m. On 10 August 2007, BrostrĂśm signed an agreement to sell its 2.8% stake in NorrkĂśpings Hamn & Stuveri AB. The sale generated a pre-tax gain of SEK 10.9 m, which was booked as income in the third quarter of 2007. BrostrĂśmâ&#x20AC;&#x2122;s complete fleetlist can be found at www.brostrom.com.

Pledged assets and contingent liabilities

Cash flow

Pledged assets increased during the year by SEK 33.9 m and amounted to SEK 5,816.1 m (5,782.5). Contingent liabilities decreased by SEK 17.0 m during the year and amount to SEK 66.1 m (83.1).

Cash flow from operating activities amounted to SEK 745.9 m (853.7), or SEK 11.55 (13.05) per share. In 2007 a shareholder dividend of SEK 258.3 m (261.0), or SEK 4.00 (4.00) per share was paid.

Share data

Financial position and liquidity

See the section â&#x20AC;&#x153;BrostrĂśmâ&#x20AC;&#x2122;s sharesâ&#x20AC;? on page 39 and Note 28 on page 69.

The Groupâ&#x20AC;&#x2122;s disposable liquidity on 31 December 2007 amounted to SEK 993.4 m (1,109.7). This amount includes SEK 52.6 m (52.3) in unutilised overdraft facilities. Net debt increased during the period from SEK 3,015.0 m to SEK 3,640.0 m, mainly due to investments in vessels and businesses. Shareholdersâ&#x20AC;&#x2122; equity on 31 December 2007 amounted to SEK 2,499.1 m (2,606.4), and the equity/assets ratio I was 29.4% (32.8%). The equity/assets ratio II was 30.9% (35.0%), which is higher than BrostrĂśmâ&#x20AC;&#x2122;s target of 30%. As per the balance sheet date, BrostrĂśm had repurchased 2,021,000 Class B shares at an average price of SEK 66.90. BrostrĂśmâ&#x20AC;&#x2122;s Annual General Meeting on 3 May 2007 approved the Boardâ&#x20AC;&#x2122;s proposed amendment to the Articles of Association, which would allow a stock split. The split was effected by VPC on 4 June 2007, whereby each existing share was split into two new shares. Comparison values for previous years regarding the number of shares have been recalculated in accordance with IFRS. During the first quarter, BrostrĂśm launched and placed a three-year bond worth SEK 500 m. The bond has been issued with a fixed rate of interest with a coupon set to 5.25% p.a. The amount was paid out on 2 April. BrostrĂśmâ&#x20AC;&#x2122;s financial position is strong and enables continued participation in possible structural changes in the industry.

The average number of employees in 2007 was 1,206 (1,034). The Boardâ&#x20AC;&#x2122;s proposed guidelines for compensation of the senior executives, which includes the Managing Director and Deputy Managing Director, are handled by the Compensation Committee and 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. Salary during a notice period 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. These guidelines shall pertain to the Managing Director and Deputy Managing Director of BrostrĂśm AB (publ). The Board shall have the right to depart from these guidelines if there are special reasons for doing so in an individual case. This proposal will be set forth at BrostrĂśmâ&#x20AC;&#x2122;s Annual General Meeting on 29 April 2008. Pension terms, compensation terms and the profit-sharing system are described in Note 9 on page 64.

Personnel

N $VSSFOU MJBCJMJUJFT N /PO DVSSFOU MJBCJMJUJFT JOUFSFTU CFBSJOH N /PO DVSSFOU MJBCJMJUJFT OPOJOUFSFTU CFBSJOH N 4IBSFIPMEFSTh FRVJUZ BOE NJOPSJUZ JOUFSFTUT

N %FQSFDJBUJPO N 1FSTPOOFM DPTUT N 0QFSBUJOH FYQFOTFT N 7BSJBCMF DPTUT

N (PPEXJMM FUD N 7FTTFMT FRVJQNFOU N 'JOBODJBM BTTFUT OPO DVSSFOU N $VSSFOU BTTFUT N $BTI BOE DBTI FRVJWBMFOUT

Shareholdersâ&#x20AC;&#x2122; equity and liabilities

Operating expenses

Assets

FINANCIAL STATEMENTS

Consolidated income statement Note

2007

2006

Net sales

3,504.0

3,386.1

Capitalised work for own account

0.5

10.5

142.5

122.8

SEK m

Other income

Share in associated companiesâ&#x20AC;&#x2122; profit before tax

External expenses

-2,075.2

-1,908.0

Personnel costs

-546.7

-514.2

15, 16, 18

-373.4

-340.5

Operating profit (EBIT)

663.6

771.7

Depreciation and write-downs

11.9 1

5.0

Financial income

44.6

16.8

Financial expenses

-257.8

-208.7

Net financial items

-213.2

-191.9

Profit after net financial items

450.4

579.8

Tax on profit for the year

-23.9

-76.8

PROFIT FOR THE YEAR

426.5

503.0

Equity holders of the parent

419.8

495.1

Minority interests

6.7

7.9

Profit for the year attributable to

6.50

7.57

Profit for the year per share after dilution

Profit for the year per share

6.50

7.57

Proposed dividend per share

3.00

4.00

Average exchange rates SEK/USD

6.76

7.38

SEK/EUR

9.25

FI N A N C I A L S TAT EM EN T S

Consolidated balance sheet SEK m

Note

31/12/2007

31/12/2006

ASSETS Non-current assets Intangible assets

Goodwill

119.8

124.0

Other intangible assets

2.2

2.5

Total intangible assets

122.0

126.5

Tangible assets

Vessels

6,410.3

5,775.6

Newbuilding contracts

8.9

89.3

Other tangible assets

44.5

42.5

Total tangible assets

6,463.7

5,907.4

Financial assets

Participations in associated companies

81.4

48.8

Other financial assets

23.6

28.7

Total financial assets

105.0

77.5

Total non-current assets

6,690.7

6,111.4

113.6

63.6

Current assets Inventories, etc.

Current receivables Accounts receivable â&#x20AC;&#x201C; trade

Other receivables

281.2

235.7

88.8

102.3

146.7

154.4

Total current receivables

516.7

492.4

Short-term investments

233.6

226.0

Cash and cash equivalents

940.8

1,057.4

Total current assets

1,804.7

1,839.4

TOTAL ASSETS

8,495.4

7,950.8

Prepaid expenses and accrued income

Year-end exchange rates SEK/USD

6.47

6.87

SEK/EUR

9.47

9.05

FI N A N C I A L S TAT EM EN T S

SEK m

Note

31/12/2007

31/12/2006

SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity

Share capital

65.8

Other capital contributions

886.3

Other reserves

-422.8

-286.8

Profit brought forward

1,938.1

1,908.4

2,467.4

2,573.7

Minority interest

31.7

32.7

2,499.1

2,606.4

478.4

481.0

Total shareholders’ equity Non-current liabilities, noninterest-bearing Deferred tax liabilities Pension obligations

30.4

29.1

Other non-current liabilities, noninterest-bearing

114.1

149.7

Total non-current liabilities, noninterest-bearing

622.9

659.8

Non-current interest-bearing liabilities Bond issues Debenture loans

500.0

274.8

14.8

29.5

Credit institutions

3,048.9

2,267.9

Leasing liabilities

403.4

599.9

Other non-current interest-bearing liabilities

200.2

797.5

Total non-current interest-bearing liabilities

4,167.3

3,969.6

Current liabilities Bond issues, interest-bearing

258.8

Credit institutions and other, interest-bearing

366.8

295.6

Leasing liabilities

21.6

33.2

Accounts payable – trade

167.3

58.1

Current tax

0.7

1.2

Other current liabilities

96.3

55.0

294.6

271.9

Total current liabilities

1,206.1

715.0

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

8,495.4

7,950.8

Pledged assets

5,816.1

5,782.2

Contingent liabilities

66.1

83.1

Accrued expenses and prepaid income

FINANCIAL STATEMENTS

Changes in shareholders’ equity, Group

AT TRIBUTABLE TO EQUIT Y HOLDERS OF THE PARENT

Share SEK m capital

Equity at 1/1/2006

Other capital Other contributions reserves

Profit brought Minority forward interests

Total shareholders’ equity

65.2

870.4

62.2

1,676.9

34.8

2,709.5

Application of new accounting principles

–

-2.6

–

-2.6

Exchange rate differences

–

-344.5

–

-1.6

-346.1

Divestment of minority interest

–

-0.3

Derivative instruments, cash flow hedging

–

-4.7

–

-4.7

Tax pertaining to derivative instruments

–

0.2

–

0.2

Total transactions reported directly against equity

–

-349.0

-2.6

-1.9

-353.5

PROFIT FOR THE YEAR

–

495.1

7.9

503.0

Total reported income and expense

–

-349.0

492.5

6.0

149.5 -269.1

–

-261.0

-8.1

New share issue

Dividend

0.6

15.9

–

16.5

Total

0.6

15.9

–

-261.0

-8.1

-252.6

65.8

886.3

-286.8

1 908.4

32.7

2,606.4

EQUITY at 31/12/2006 Change in minority share

–

1.6

-7.3

-5.7

Exchange rate differences

–

-136.0

–

3.0

133.0

directly against equity

–

-136.0

1.6

-4.3

-138.7

PROFIT FOR THE YEAR

–

419.8

6.7

426.5

Total reported income and expense

–

-136.0

421.4

2.4

287.8

Dividend

–

-258.3

-3.4

-261.7

Share repurchases

–

-135.3

–

-135.3

New share issue, warrant premiums

–

1.9

–

1.9

Total

–

-391.7

-3.4

-395.1

65.8

886.3

-422.8

1,938.1

31.7

2,499.1

Total transactions reported

Equity at 31/12/2007

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. See Note 29.

FI N A N C I A L S TAT EM EN T S

Cash flow statement, Group* SEK m

Note

2007

2006

Operating activities Operating profit (EBIT)

663.6

771.7

Depreciation

373.4

340.5

Other adjustment items

-241.7

-246.3

Interest received

64.2

60.4

Dividends received

0.4

0.2

Interest paid

-234.2

-166.7

Income tax paid

-3.0

-4.4

Increase/decrease in

Inventories

-46.9

-4.5

Current receivables

164.1

112.8

Current operating liabilities

5.9

-10.0

Cash flow from operating activities

745.9

853.7

Investing activities Purchase of

Intangible assets

-0.6

-0.4

Tangible assets

-876.3

-1,982.9

Financial assets

-5.9

373.8

Sale of Intangible assets

93.3

Tangible assets

11.2

-324.9

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Associated companies

-22.3

-0.1

15.2

Associated companies

3.0

Change in other financial assets

1.5

-0.4

-1,121.1

-1,594.8

Acquisition of Subsidiaries Sale of Subsidiaries

Cash flow from investing activities

Financing activities Dividend to shareholders

-258.3

-261.0

Dividend to minority owners

-3.4

-8.1

Share repurchases

-135.3

New share issue

1.9

16.5

New loans raised

1,031.6

1,276.5

Repayment of loans

-327.6

-331.2

Cash flow from financing activities

308.9

692.7

CASH FLOW FOR THE YEAR

-66.3

-48.4

Opening balance

1,283.4

1,480.5

Cash flow for the year

-66.3

-48.4

Exchange rate difference

-42.7

-148.7

1,174.4

1,283.4

Cash and cash equivalents and short-term investments

Cash and cash equivalents and short-term investments, closing balance * Indirect method

FI N A N C I A L S TAT EM EN T S

Parent company income statement SEK m

Note

Net sales

2006

35.4

31.9

Other income

0.5

20.4

External expenses

-33.7

-30.1

Personnel costs

-36.0

-34.7

15, 18

-5.9

-6.2

Operating loss (EBIT)

-39.7

-18.7

Depreciation and write-downs

2007

Anticipated dividends from Group companies

94.1

167.6

Dividends from Group companies

425.4

100.8

Write-down of shares in Group companies

-359.3

-0.1

Financial income

41.4

-2.6

Financial expenses

-68.0

-12.7

Net financial items

133.6

253.0

Profit after net financial items

93.9

234.3

Appropriations

3.4

Profit before tax

93.9

237.7

Tax on profit for the year

17.8

12.8

PROFIT FOR THE YEAR

111.7

250.5

FI N A N C I A L S TAT EM EN T S

Parent company balance sheet SEK m

Note

31/12/2007

31/12/2006

ASSETS Non-current assets Intangible assets

0.9

1.1

Tangible assets

14.9

18.5

Shares and participations in Group companies

1,907.1

1,941.5

Receivables from Group companies

8.9

Participations in other companies

0.4

Deferred tax asset

1.9

11.2

Total financial assets

1,918.3

1,961.6

Total non-current assets

1,934.1

1,981.2

0.4

1,014.3

889.4

Other receivables

104.3

171.9

Financial assets

Current assets Accounts receivable – trade Receivables from Group companies Prepaid expenses and accrued income

5.4

4.8

Total current receivables

1,124.0

1,066.5

719.3

960.8

Cash and cash equivalents

1,843.3

2,027.3

TOTAL ASSETS

3,777.4

4,008.5

1,565.9

1,776.4

Bond issues

500.0

274.8

Credit institutions

Short-term investments

SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity Non-current liabilities 34

51.0

Group companies

3.1

668.1

Total non-current liabilities

503.1

993.9

Current liabilities Bond issues

258.8

Credit institutions and others, non-current

51.0

40.0

Accounts payable – trade

3.8

4.0

Liabilities to Group companies

1,371.6

1,181.8

Other current liabilities

5.1

0.7

18.1

11.7

Total current liabilities

1,708.4

1,238.2

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

3,777.4

4,008.5

Accrued expenses and deferred income

Pledged assets

3.5

Contingent liabilities

3,453.2

3,296.9

FI N A N C I A L S TAT EM EN T S

Changes in shareholders’ equity, parent company

Share Statutory SEK m capital reserve

Equity at 31/12/2005

933.3

Profit brought Profit forward the year

999.1

327.1

440.7

Transfer of preceding year’s profit

Unrestricted Total shareholders’ shareholders’ equity equity

767.8

1,766.3

440.7

-440.7

–

8.9

–

8.9

–

-2.5

–

-2.5

–

-3.1

Tax on Group contributions rendered

–

0.9

–

0.9

PROFIT FOR THE YEAR

–

250.5

Group contributions received

–

Tax on Group contributions received Group contributions rendered

Dividend New share issue

Equity at 31/12/2006

–

-261.0

–

-261.0

0.6

–

15.9

–

15.9

16.5

65.8

933.3

999.1

526.9

250.5

777.3

1,776.4

Transfer of preceding year’s profit

–

250.5

-250.5

–

Group contributions received

–

101.4

–

101.4

Tax on Group contributions received

–

-28.4

–

-28.4

Group contributions rendered

–

-4.9

–

-4.9

Tax on Group contributions rendered

–

1.4

–

1.4

PROFIT FOR THE YEAR

–

111.7

Dividend

–

-258.3

–

-258.3

Share repurchases

–

-135.3

–

-135.3

New share issue, warrant premiums

–

1.9

–

1.9

65.8

933.3

999.1

455.1

111.7

566.8

1,565.9

Equity at 31/12/2007

65.2

Restricted shareholders’ equity

FI N A N C I A L S TAT EM EN T S

Cash flow statement, parent company*

SEK

2007

2006

Operating activities Operating loss (EBIT)

-39.7

-18.7

Depreciation

5.9

6.2 -14.7

Other adjustment items

–

Interest received

51.6

41.9

Dividends received

593.0

420.5

Interest paid

-77.5

-56.0

Income tax paid

–

Increase/decrease in

Current receivables

-37.7

-373.8

Current operating liabilities

462.0

154.8

Cash flow from operating activities

957.6

160.2

Investing activities Purchase of

Intangible assets

–

-0.2

Tangible assets

-2.3

-1.8

0.1

–

Sale of Tangible assets Sale of/shareholders’ contribution to Subsidiaries

-324.9

–

16.9

Sale of Subsidiaries

Change in other financial assets Cash flow from investing activities

-0.4

–

-327.5

14.9

Financing activities Dividend to shareholders

-258.3

Share repurchases

-135.3

-261.0 –

New share issue

–

16.5

New share issue, warrant premiums

1.9

–

New loans raised

500.0

–

Repayment of loans

-990.8

-83.2

Group contribution received

5.9

76.4

Cash flow from financing activities

-876.6

-251.3

CASH FLOW FOR THE YEAR

-246.5

-76.2

Opening balance

960.8

1,039.5

Cash flow for the year

-246.5

-76.2

Exchange rate difference

5.0

-2.5

719.3

960.8

Cash and cash equivalents and short-term investments

Cash and cash equivalents and short-term investments, closing balance * Indirect method

FI N A N C I A L S TAT EM EN T S

Accounting and valuation principles Note 1. General information Broström is one of the leading logistics companies for the oil and chemical industry, focusing 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, Stockholm Stock Exchange. Its postal address is Östra Hamngatan 7, SE-403 30 Göteborg. The Annual Report was adopted by the Board and approved for publication on 18 March 2008.

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, recommendation RFR 1.1 Supplementary Accounting Principles for Groups of Companies, issued by the Swedish Financial Reporting Board, and with International Financial Reporting Standards (IFRS) 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 very complex or areas in which assumptions and estimations are of material significance for the consolidated accounting are specified in Note 4, Critical assessments and estimations. 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 standards, amendments and interpretations that took effect in 2007. The following standards, amendments and interpretations of published standards are not relevant for the Group: IFRS 4 – Insurance Contracts, IFRIC 7 – Application of the Restatement Approach under IAS 29 – Financial Reporting in Hyperinflationary Economies, and IFRIC 9 – Reassessment of Embedded Derivatives. In other respects, the Group applies the new IFRSs that have emerged and which are relevant for the company. The Group has also analysed the IFRSs and interpretations that have not yet taken effect. IFRS 8 – Operating Segments (applies from 1 January 2009): this new standard requires that segment information is presented from management’s perspective, which entails that it is presented in the manner used in the internal reporting. Management is currently analysing what impact, if any, this standard will have on the company’s operational breakdown. 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

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 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 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 Group’s share of profit after tax that arises in an associated company after its acquisition is reported in the income statement and its share of changes in reserves after the acquisition is reported among reserves. Accumulated changes in shareholders’ equity after the acquisition are reported as changes in the holding’s carrying amount. Unrealised gains and losses on transactions between the Group and associated company are eliminated in relation to the Group’s holding in the company. The share in the associated company’s profit after tax is reported as part of operating profit, since Broström views the holding as an operating investment instead of a financial investment.

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.

Transactions with minority holders 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.

Subsidiaries

Translation of foreign currencies

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

Functional currency and reporting currency Items included in the financial statements 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.

FI N A N C I A L S TAT EM EN T S

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 costs 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 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.

Transactions and balance sheet items 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. The exception is exchange rate differences related to the redemption of loans in connection with sales of vessels, which together with capital gains/losses, are reported as the result of 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.

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.

Other income 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.

Dividend income Dividend income is recognised when the right to receive payment is judged to be certain.

Interest income Interest income is recognised over the term of the underlying source of interest using the effective interest method.

Government grants Government grants are reported in accordance with IAS 20. The maritime grants 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

Group companies

Personnel costs

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) income 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 functional currencies. Translation is done at the exchange rate in effect on the balance sheet date.

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 profitsharing system that is described in Note 9 on page 66. Profit shares are calculated, reserved and allocated over time as personnel costs starting with the quarter in which it could be judged with adequate certainty that the profit shares pertaining to the financial year would be paid out. Severance pay, where applicable, is reported as a personnel expense including social insurance charges, when the decision has been made and the parties affected have been notified.

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.

FI N A N C I A L S TAT EM EN T S

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.

ated using separate depreciation schedules. For new vessels, the initial docking is estimated and based on experience from previous and similar dockings. The cost of a second-hand vessel is also broken down into a docking portion and a vessel portion. Broström’s principles for docking are thereafter used.

Borrowing costs

Vessels chartered in

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.

If the remaining charter period for a vessel that has been chartered in is shorter than 30 months, the docking expense is depreciated over the remaining time.

Income taxes

Depreciation/amortisation

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.

Property, plant and equipment and intangible assets are depreciated or amortised systematically over their estimated useful life as follows:

Intangible assets Goodwill

Newbuilding contracts include expenses for ongoing investments in shipbuilding in which delivery has not yet been made from the shipyard, interest on borrowed capital and own inspectors’ work associated with vessel newbuilding. No depreciation is made of such contracts.

Vessels Computers Software, incl. internally developed Machinery and equipment Buildings

Method Years Linear 25 Linear 3 - 5 Linear 3 - 5 Linear 5 - 10 Linear 25 - 50

Residual value Estimated scrap value -

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. The Group consists of several collaborating companies which 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.

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. Additional capitalised costs are depreciated within the original depreciation schedule for the vessel in question. The residual value is an estimated scrapping value and 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.

Other intangible assets

Impairment

Internally developed values in intangible assets, such as software development and licence rights, are reported as an asset.

Broström’s business concept is to conduct industrial product and chemical tanker shipping, including 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 any impairment; in addition, an estimation is made if there is any indication of a need recognise impairment. In this impairment testing, the

Tangible assets Vessels The cost of vessels is capitalised upon purchase of the vessel. Additional costs are added to the asset’s carrying amount only when it is 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. Vessels are reported for sale when a binding agreement has been signed with a buyer.

Docking of vessels Docking refers to dry docking of vessels on a floating dock or dry dock for inspection or repairs. Docking expenses are capitalised and posted as vessels and are depreciated linearly over a period of 30 months. The cost of new vessels is broken down into a docking portion and a vessel portion. Both parts are capitalised, but are depreci-

Newbuilding contracts

FI N A N C I A L S TAT EM EN T S

book value of the cash-generating unit to which the goodwill belongs is compared with the higher of the fair value less sales costs 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. On each balance sheet date the Group assesses if there is a need to recognise impairment of financial assets. A significant or prolonged decline in the fair value of a financial asset is viewed as an indication that there is a need to recognise impairment, and is in such case reported as an impairment loss in the income statement.

Leasing Leases and charter contracts are classified in the consolidated financial statements as finance or operating leases. A lease is reported as a finance lease when the economic reward and risks associated with the ownership have 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 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 (FIFO) method. Bunker and lubrication oils 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 in the income statement, (II) receivables and liabilities, (III) available-for-sale financial assets. The classification is dependent on the purpose for which the instrument was acquired.

(I) Financial assets and liabilities carried at fair value in 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 classified as held for sale if they are not identified as hedges. Assets in this category are classified as current assets.

(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 in 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.

(III) Available-for-sale financial assets Available-for-sale financial assets 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 available-for-sale assets are reported in equity. When financial instruments that are classified as available-for-sale assets 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.

Derivative instruments Derivative instruments, where such exist, 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 effectiveness of the hedge can be measured in a reliable manner – 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

FI N A N C I A L S TAT EM EN T S

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 three months. Money market investments and deposits are valued on the balance sheet date with allocation over time of the nominal interest of 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 three months or less. Foreign currencies are valued at the year-end exchange rate. Certificates of deposit are valued on the balance sheet date with allocation over time of the nominal interest of the certificate.

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.

Cash flow statements

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.

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. Cash flows in foreign subsidiaries are recalculated according to the average exchange rate during the period when the transactions took place.

Other reserves

Segment reporting

Other reserves pertain to transactions which, due to IFRS rules, are to be recognised immediately in equity.

Starting in 2007, Broström has no segmental breakdown, since the companies that essentially made up the Marine & Logistics Services unit were sold in 2005 and 2006. A segmental breakdown is therefore no longer relevant.

Group equity Other capital contributions

Translation reserve The translation reserve includes all exchange rate differences that arise in translation of financial statements from foreign operations that have prepared their financial statements in another currency than the currency that the Group’s financial statements 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 equity capital instruments are reported as a decrease of profit brought forward.

Minority interests 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.

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 consoli-

dated 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.

Primary segments Operations consist of tanker shipping through distribution of refined oil products and chemicals, ship management and ship agency activities. 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 Financial risk factors 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.

FI N A N C I A L S TAT EM EN T S

Market risk

Reporting of derivative instruments and hedges

Market risk is broken down into currency risk and price risk.

Cash flow hedges

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 as a result of the fact that future business transactions are expressed in another currency than SEK, through reported assets and liabilities, and through net investments in foreign operations. The most important companies in the Broström Group have the US dollar as their functional currency. Transaction exposure The Group has income and expenses in a number of currencies, mainly in US dollars. A change in the exchange rate for the US dollar by 0.10 relative to the Swedish krona would affect profit after net financial items in the amount of +/–SEK 12 m, all else unchanged. Broström manages currency risks that arise through forward hedges. No forward hedges existed on the balance sheet date. Translation exposure Broström reports the Group’s profit and balance sheets in Swedish kronor. Most of the Group’s assets and liabilities are stated in the functional currency, USD, which entails that Broström’s consolidated shareholders’ equity is exposed to exchange rate movements. This currency risk, which is referred to as translation exposure, is not hedged. The Group’s net assets (assets less liabilities in other currencies than the reporting currency) in USD amount to SEK 2,507 m (1,923). There are no significant net assets in foreign currency. 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.

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. For further information, see Note 24 on page 69.

Liquidity risk Short-term investments of cash and cash equivalents are governed by the company’s investment policy. This policy entails that investments are made in accordance with a conservative strategy, and investments are made only in companies judged to have a low risk. For further information, see Note 27 on page 69.

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 one percentage point change in interest rates would affect profit after net financial items on a yearly basis by SEK +/-30 m. Interest rate swap agreements balance the Group’s interest rate exposures against changes in interest rates. There were no outstanding interest rate swap agreements on the balance sheet date.

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.

Calculation of fair value The fair value of interest rate swaps is calculated as the present value of estimated future cash flows. The fair value of currency forward contracts is determined by using market prices for forward contracts on the balance sheet date.

Note 4. Critical assessments and estimations for accounting purposes In preparing 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 provided. 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.

Impairment testing 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 31/12/2007. If the estimated discount rate (the WACC rate) had been 1% higher than the assumed interest rate of 6.95% (6.97%), there would not have been any need to recognise impairment of the reported value.

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.

Note 5. Parent company’s accounting principles The Annual Report has been prepared in accordance with the Swedish Annual Accounts Act and recommendation RFR 2.1 – Accounting for Legal Entities, issued by the Swedish Financial Reporting Board. 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.

FI N A N C I A L S TAT EM EN T S

Borrowing costs

Equity for the parent company

Borrowing costs are charged against profit in the period they pertain to.

Equity for the parent company is reported in accordance with the rules of the Annual Accounts Act, broken down into restricted and unrestricted equity.

Group contributions and shareholder contributions Group contributions and shareholders contributions are reported in accordance with UFR 2. 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 is reported in the income statement.

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.

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.

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.

Notes Note 6 Other income Group SEK m 2007 2006 Profit on sales of vessels 1.9 99.5 Profit on sale of subsidiary - 11.3 Profit on sales of assoc. companies 1.3 - Insurance indemnification, monetary 6.7 6.5 Dissolution of negative goodwill 117.2 - Other 15.4 5.5 142.5 122.8

Note 8 External expenses Parent company 2007 2006 - - 14.7 - - - 0.5 5.7 0.5 20.4

Note 7 Share in associated companies’ profit after tax SEK m Shipet Maritime Sdn Bhd (44.0%) Transpet Sdn Bhd (44.0%) 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%)

Group 2007 2006 10.2 0.2 -1.0 13.4 0.3 0.5 2.0 1.0 0.2 0.1 11.9 15.0

The share in associated companies’ profit after tax is reported as a part of operating profit.

Government maritime grants External expenses in the Group decreased by SEK 9.4 m (10.2) through receipt of government maritime grants. Auditors’ fees and remuneration Group Parent company SEK m 2007 2006 2007 2006 Öhrlings PricewaterhouseCoopers Auditing assignment 2.3 2.0 0.4 0.3 Other assignments 1.2 1.4 1.2 1.3 Acrevi Revision Auditing assignment 0.3 0.3 0.3

0.3

Other auditors Other assignments 0.2 0.1 - 4.0 3.8 1.9

1.9

Note 9 Personnel costs

Average number of employees 2007 2006 No. Of whom, No. Of whom, employees men employees men Shore-based employees Parent company Sweden 28 14 27 14 Subsidiaries Sweden 102 65 119 75 France 51 27 54 30 Denmark 14 11 13 10 Norway 24 15 21 14 Singapore 49 33 6 6 268 165 240 149 Onboard employees Swedish crews 496 479 406 393 French crews 300 295 388 386 Singaporean crews 142 142 - 938 916 794 779 Total average no. of employees

1,206

1,081

1,034

928

FI N A N C I A L S TAT EM EN T S

Salaries, other remuneration and social security costs 2007 SEK m Parent company Subsidiaries Salaries and other remuneration 19.4 415.7 Remuneration from profitsharing schemes, etc. 0.6 4.8 Social security costs (excl. pension costs) 8.0 129.4 Pension costs 5.3 31.7 Other personnel costs 2.7 29.8 Reduced payroll costs due to French government shipping subsidies - -18.8 Reduced payroll costs due to Swedish government shipping subsidies - -81.9 36.0 510.7 SEK m Parent company Salaries and other remuneration 18.2 Remuneration from profitsharing schemes, etc. 0.8 Social security costs (excl. pension costs) 6.8 Pension costs 5.1 Other payroll costs 3.8 Reduced payroll costs due to French government shipping subsidies - Reduced payroll costs due to Swedish government shipping subsidies - 34.7

Group 435.1 5.4 137.4 37.0 32.5 -18.8 -81.9 546.7

Sick leave as percentage of employees’ combined 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 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

-73.6 514.2

Of the parent company’s pension cost, SEK 3.0 m (3.1) pertains to the Managing Director and Deputy Managing Director. The corresponding amount for the Group is SEK 6.3 m (7.5). 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 UFR 3, this is classified as a multi-employer defined benefit plan. For the 2007 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 15.9 m (19.2). The corresponding amount for the parent company amounted to SEK 1.1 m (1.3). Alecta’s surplus can be apportioned among the policyholders and/or the insureds. Breakdown of salaries and other remuneration before social security costs by country Remuneration from profit-sharing schemes or similar is shown in parentheses. 2007 2006 Board, MD Other Board, MD Other SEK m and Deputy MD employees and Deputy MD employees Parent company Sweden 9.8 (-) 12.7 (0.6) 9.1 (0.4) 12.1 (0.7) Parent company, total 9.8 (-) 12.7 (0.6) 9.1 (0.4) 12.1 (0.7) Subsidiaries Sweden France Denmark Norway Singapore Subsidiaries, total

2.4 (0.2) 210.3 (2.7) 3.3 (-) 139.0 (1.2) 2.3 (-) 11.1 (0.2) 1.8 (-) 17.3 (0.3) 2.7 (-) 27.9 (0.1) 12.5 (0.2) 405.5 (4.5)

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)

Group, total

22.3 (0.2) 418.2 (5.2)

18.1 (1.1) 386.9 (15.3)

2007 1.7% 2.7% 0.6% * 0.6% 3.2%

2006 1.2% 1.5% 0.9% 1.8% 0.4%

Fewer than 11 employees.

Remuneration and benefits of senior executives Board of Directors The Annual General Meeting resolved on 3 May 2007 that the directors’ fees shall amount SEK 2,270,000 (2,175,000). In addition, the Annual General Meeting resolved that the Board’s committees would receive a fixed fee of SEK 320,000 (275,000) to be apportioned among the members at the Board’s discretion. In 2007 director’s and committee fees of SEK 720,000 (620,000) were paid to the Chairman of the Board, Lars-Olof Gustavsson. No other remuneration or benefits were paid to the Chairman of the Board. Directors’ and committee fees totalling SEK 1,800,000 (1,517,500) were paid to the seven other AGM-elected directors, divided equally among them. No other remuneration or benefits were paid. In 2007 fees of SEK 57,000 (-) were paid to the law firm in which board member Claes Lundblad is employed, for assignments that he was consulted for. In 2007 fees of SEK 244,750 (539,767) were paid to the law firm in which board member Claes Lundblad is employed, for assignments that the law firm was consulted for. Managing Director Salary and taxable benefits and other remuneration were booked as an expense during the year to Broström AB’s Managing Director, Lennart Simonsson, as follows: SEK m Salary Profit-sharing for 2007 Other benefits

Amount 4.7 - 0.1

Of which, pensionable 4.7 -

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. Deputy Managing Director Salary and taxable benefits and other remuneration were booked as an expense during the year to Broström AB’s Deputy Managing Director, Anders Dreijer, as follows: SEK m Salary Profit-sharing for 2007 Other benefits

Amount 2.6 - 0.1

Of which, pensionable 2.6 -

FI N A N C I A L S TAT EM EN T S

During the year, pension premiums totalling SEK 1.2 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 70% of yearly salary at 60 years of age. After 65 years of age, no pension benefits are payable other than the statutory retirement pension and ITP pension. An agreement has been made with the Deputy Managing Director for severance pay amounting to two years’ salary in the event the company serves notice. The Deputy Managing Director cannot trigger severance pay himself. Other senior executives Salary and taxable benefits and other remuneration were booked as an expense during the year to other senior executives, as follows: SEK m Salary Profit-sharing for 2007 Other benefits

Amount 8.1 - 0.7

Of which, pensionable 8.1 -

During the year, pension premiums totalling SEK 0.8 m in excess of the ITP plan were booked as an expense. One member of the Group Management 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 one senior executive entitling him to severance pay equivalent to two years’ salary, with another for severance pay equivalent to 25 months’ salary, with one 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. Such compensation continues to be payable if the executive receives pay from another employer. There is no possibility for any of these executives to trigger severance pay themselves. In addition to the senior executives referred to above, an agreement has been made with the managing 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. Profit-sharing systems The management of subsidiaries, all salaried employees and onboard employees are included in a profit-sharing system that is based in part on earnings of their respective companies and in part on consolidated profit. Employees of certain large subsidiaries participate only in the profit-sharing 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 2007 this entailed an interval between 6.75% and 14.75%. The total dividend ranges in size between one-fourth 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 2007, the dividend from the profitsharing system will amount to SEK 3.1 m (5.7) for shore-based employees. For onboard employees, the dividend for 2007 will amount to SEK 2.6 m (3.9). For the members of the Group Management there will be no dividend paid out for 2007 (0.7).

Gender breakdown of board and management Group Parent company % Men Women Men Women Board of Directors 85 15 100 0 Management 88 12 83 17

Note 10 Financial income Group Parent company SEK m 2007 2006 2007 2006 Interest income External 63.7 60.9 42.5 39.7 Group companies - - 12.4 5.7 Exchange rate differences Exchange rate differences -19.1 -44.1 -13.5 -48.0 44.6 16.8 41.4 -2.6

Note 11 Financial expenses SEK m Interest expenses Loans Group companies Exchange rate differences Exchange rate differences

Of the above expenses, finance leases account for

Group Parent company 2007 2006 2007 2006 -273.8 -

-245.4 -

-41.1 -42.9

-22.7 -33.3

16.0 -257.8

36.7 -208.7

16.0 -68.0

43.3 -12.7

-36.7

-50.4

Note 12 Tax on profit for the year Group Parent company SEK m 2007 2006 2007 2006 Significant sub-amounts Current tax on profit for the year -3.3 -3.7 27.1 1.6 Deferred tax, temporary differences -11.3 -82.3 - Deferred tax, tax-loss carryforward -9.3 9.2 -9.3 11.2 -23.9 -76.8 17.8 12.8 Relationship between reported pre-tax profit and tax expense for the period Reported profit before tax 450.4 Tax according to national tax rates -67.9 Effect of tonnage-based income tax 36.8 Effect of local tax rate -2.2 Effect of non-taxable profit/loss items 9.4 Adjustment of current tax for previous years - -23.9 Current and deferred tax booked directly against shareholders’ equity Effect of Group contribution Effect of new accounting principle (Note 32) Exchange rate differences Derivative instruments

579.8 -159.3 90.1 -1.6 -7.0

93.9 -26.3 - - 44.1

237.6 -66.5 79.3

1.0 -76.8

- 17.8

12.8

-27.0

-1.6

- 22.7 - 22.7

-1.1 -63.6 -0.2 -64.9

- - - -27.0

-1.6

FI N A N C I A L S TAT EM EN T S

Note 13 Earnings per share

Group SEK m 2007 2006 Profit used as basis for calculating earnings per share before and after dilution 419.8 495.1 Average number of shares outstanding before dilutive effect 64,585,026 65,395,807 Dilution shares - 2,264 Average number of shares after dilutive effect 64,585,026 65,398,078 Profit for the year per share. SEK

6.50

7.57

The average number of shares is calculated as a weighted average of the following factors: Opening number of shares New issue Closing number of shares Total number of shares outstanding

65,797,184 - -2,021,000 63,776,184

65,245,684 551,500 65,797,184

Note 14 Goodwill

SEK m Opening cost Sale of subsidiary Exchange rate difference Closing cost

Group Parent company 2007 2006 2007 2006 124.0 141.1 - - -5.9 - -4.2 -11.2 - 119.8 124.0 - -

Testing for goodwill impairment Goodwill pertains to the Group’s cash-generating unit – Shipping. The Shipping unit comprises several collaborating companies that jointly operate the Group’s commercial fleet. The combined fleet is included in Broström’s global logistics system, which operates across national borders, which is why any breakdown of goodwill into legal entities is irrelevant. Goodwill is tested for impairment annually and when a need for goodwill impairment becomes evident. The recoverable 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 6.95% (6.97). There was no need to recognise impairment as per 31/12/2007. In the company’s opinion, a change of one percentage point did not result in any difference.

Note 15 Other intangible assets SEK m Opening cost New acquisition/capitalisation Sales and scrapping Exchange rate difference Closing cost

Group Parent company 2007 2006 2007 2006 15.5 16.4 1.6 1.4 0.6 0.4 - 0.2 -3.9 -0.9 - 0.3 -0.4 - 12.5 15.5 1.6 1.6

Opening accumulated amortisation Sales and scrapping Amortisation for the year Exchange rate difference Closing accumulated amortisation

-13.0 3.9 -1.0 -0.2 -10.3

-12.7 0.8 -1.4 0.3 -13.0

-0.5 - -0.2 - -0.7

-0.4 -0.1 -0.5

Closing residual value according to plan 2.2

2.5

0.9

1.1

Note 16 Vessels Group SEK m 2007 2006 Opening cost 7,053.0 6,441.2 New acquisition/capitalisation 794.8 1,269.8 Acquisition of subsidiary 748.7 Sales and scrapping -394.9 -480.2 Reclassifications 88.2 681.5 Exchange rate difference -379.1 -859.3 Closing cost 7,910.7 7,053.0 Opening accumulated depreciation -1,277.4 Acquisition of subsidiary -162.1 Sales and scrapping 252.1 Depreciation for the year -362.2 Exchange rate difference 49.2 Closing accumulated depreciation -1,500.4

-1,298.3 195.7 -328.5 153.7 -1,277.4

Total residual value according to plan 6,410.3

5,775.6

The cost of vessels includes capitalised interest: During the year 0.5 Accumulated 112.4

6.2 101.9

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 2.7 billion (2.4) compared with book values. Of which, finance leases are included in the above in the following amounts: Group SEK m 2007 2006 Opening cost 974.0 976.2 Reclassifications -308.8 Exchange rate difference - -2.2 Closing cost 665.2 974.0 Opening accumulated depreciation Depreciation for the year Reclassifications Exchange rate difference Closing accumulated depreciation

-85.2 -26.4 46.3 - -65.3

-47.8 -37.6 0.2 -85.2

Residual value according to plan 599.9

888.8

Note 17 Newbuilding contracts SEK m Opening balance Expenses incurred during the year Reclassifications Exchange rate difference Closing balance

Group 2007 2006 89.3 357.4 4.4 412.2 -84.8 -681.5 - 1.2 8.9 89.3

Parent company 2007 2006 - - - - - -

Newbuilding contracts include both the expenses relating to the projects and advances to shipyards. Group Parent company SEK m 2007 2006 2007 2006 Capitalised interest in newbuilding contracts During the year - 4.3 - Accumulated - 6.5 - -

of which Patents and trademarks

0.4

Licence rights for software

1.8

2.1

0.9

1.1

FI N A N C I A L S TAT EM EN T S

Note 18 Other tangible assets SEK m Opening cost Acquisition of subsidiary New acquisition/capitalisation Sales and scrapping Exchange rate difference Closing cost

Group 2007 2006 96.5 101.2 11.8 - 8.0 4.9 -13.0 -9.1 1.4 -0.5 104.7 96.5

Parent company 2007 2006 40.3 38.6 - 2.3 1.7 -1.6 - 40.9 40.3

Opening depreciation Acquisition of subsidiary Sales and scrapping Depreciation for the year Exchange rate difference Closing accumulated depreciation

-49.0 -7.9 12.6 -10.2 -0.7 -55.2

-45.4 - 7.1 -10.6 -0.1 -49.0

-21.8 - 1.5 -5.7 - -26.0

-15.9 -5.9 -21.8

Closing accumulated impairment charges

-5.0

Closing residual value according to plan

44.5

42.5

14.9

18.5

Swedish subsidiaries Rederi AB Ankaret* Nordia Shipping AB* Broström Oil AB* Broström Ship Agency Network AB* Broström Ship Management AB* Broström Tankers AB* Wintria AB *

556028-0504 556243-7243 556212-6234 556202-7218 556001-0596 556308-1545 556237-1947

Göteborg Göteborg Göteborg Göteborg Tjörn Göteborg Göteborg

Group

Closing residual value according to plan consists of: Buildings 23.6 21.2 9.1 9.2 Land 2.9 2.9 - Machinery 3.2 3.5 - Equipment 14.8 14.9 5.8 9.3 Planned residual value of property in Sweden 11.8 12.0 9.1 9.2

Minor changes have been made in subsidiary groups.

Tax assessment value of property in Sweden Of which, building value

Closing book residual value

4.4 3.0

8.5 6.8

4.4 3.0

8.5 6.8

Note 19 Participations in Group companies SEK m Opening cost Acquisitions during the year Sales during the year Closing cost Closing accumulated revaluations Closing accumulated write-downs Closing book value

Parent company 2007 2006 2,112.9 2,115.1 324.9 - -2.2 2,437.8 2,112.9 1.1

1.1

-531.8

-172.5

1,907.1

1,941.5

The shares in Broström Tankers AB were written down by SEK 359.3 m in 2007. Participations in subsidiaries and Group companies No. shares/ Share of Share of partici- equity, % votes, % pations Foreign subsidiaries Broström Holding BV* 100 100 1,500 Broström Tankers SAS* 100 100 850,000 Broström Tankers Ltd* 100 100 10,000 Broström Asia Pte Ltd* 100 100 72,300,000 Broström Shipping Company, Inc. 100 100 410

Book value 455.3 168.1 324.9 0.4

Swedish subsidiaries Rederi AB Ankaret* 100 100 20,500 2.6 Nordia Shipping AB* 100 100 10,000 2.5 Broström Oil AB* 100 100 10,000 1.3 Broström Ship Agency Network AB* 100 100 1,000 15.1 Broström Ship Management AB* 100 100 200,000 0.8 Broström Tankers AB* 100 100 13,819,891 936.0 Wintria AB 100 100 1,000 0.1 * Group 1,907.1

Information on subsidiaries’ and Group companies’ registered numbers and registered offices Reg. no. Registered office Foreign subsidiaries Broström Holding BV* B.V.327.944 Rotterdam, Netherlands Broström Tankers SAS* R.C.S. B 308 276 591 Paris, France Broström Tankers Ltd* 21,798 B Bahamas * Broström Asia Pte Ltd 200708781H Singapore Brostrom Shipping Company, Inc. 8044976 Delaware, USA

Note 20 Receivables from Group companies SEK m Opening cost

Parent company 2007 2006 8.9 8.9 8.9

8.9

Note 21 Participations in associated companies SEK m Opening cost Acquisitions during the year Sales during the year Exchange rate difference Closing cost

Group 2007 2006 12.9 12.9 22.3 - -0.6 0.1 0.8 -0.1 35.4 12.9

Opening change in share of equity 35.9 Change in share of equity for the year 9.3 Reclassifications - Exchange rate differences 0.8 Closing change in share of equity 46.0 Closing value of participations

81.4

Parent company 2007 2006 - - - - - -

51.5 9.9 -24.5 -1.0 35.9

- - - - -

48.8

No. shares/ Share of partici- equity/votes, % pations Owned by subsidiaries SNC Union Maritime de l’Ocean Indien 1) 50.0 - Shipet Maritime Sdn Bhd 44.0 1,760,000 Transpet Sdn Bhd 44.0 44,000 Uddevalla Hamnterminal AB 39.9 9,576 Net Ship Management, Inc. 25.0 57,973

Group book value 31.9 23.0 9.6 16.5 0.4 81.4

The Group’s share of associated companies’ net assets exceeds the book value of the participations by SEK 11.2 m (5.1), which constitutes unbooked Group surplus. 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 582.2 m. 1)

This company form is equivalent to Swedish limited partnership. Broström Tankers SAS has joint and severable liability as a partner in the company.

FI N A N C I A L S TAT EM EN T S

Information on associated companies’ registered numbers and registered office and country Reg. no. Registered office and country SNC Union Maritime R.C.S. B 333 231 207 Bordeaux, de l’Ocean Indien France Shipet Maritime Sdn Bhd 380811-D Kuala Lumpur, Malaysia Transpet Sdn Bhd 509842-D Kuala Lumpur, Malaysia Uddevalla Hamnterminal AB 556064-2745 Uddevalla, Sweden Net Ship Management, Inc. AS 091-191928 Manila, Philippines

Note 22 Other financial assets SEK m Opening cost Additional receivables Acquired receivables Cleared receivables/disposals Reclassifications Exchange rate differences Closing cost

Group 2007 2006 28.7 28.3 0.4 - 0.2 - -1.6 -0.1 -3.4 - -0.7 0.5 23.6 28.7

Parent company 2007 2006 - - - - - - - -

Consists of Receivables from assoc. companies Deposits in USD, fixed interest, maturity 2011 Other

14.5

15.1

8.6 0.5

9.8 3.8

- -

Note 23 Inventories SEK m Bunkers and lubrication oil Goods for resale

Group 2007 2006 113.4 63.5 0.2 0.1 113.6 63.6

Parent company 2007 2006 - - - -

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 for obsolescence.

Note 24 Trade receivables SEK m Trade receivables, not due Overdue < 3 months Overdue > 3 months Trade receivables, gross Less reserve for decline in value of trade accounts receivable Total trade accounts receivable

Group 2007 2006 172.0 130.4 111.6 107.0 1.3 1.2 284.9 238.6 -3.7 281.2

Parent company 2007 2006 - 0.4 - - - -

-2.9 235.7

- -

0.4

Trade receivables are reported in the amount that corresponds to their fair value. No need to recognise impairment is judged to exist for trade receivables that are less than 3 months overdue. Specification of change in provisions for trade receivables. SEK m Provision at start of year Provisions made during the year Reversals of unutilised amounts Translation differences Provision at year-end

Group 2007 2006 -2.9 -3.2 -1.0 0.8 0.5 1.0 -0.3 0.2 -3.7 -2.9

Parent company 2007 2006 - - - - - -

Note 25 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 2007 2006

Parent company 2007 2006

58.1 11.7 53.1

43.4 14.0 44.0

- - 5.4

4.8

1.4 22.4 146.7

1.9 51.1 154.4

- - 5.4

4.8

Note 26 Short-term investments SEK m Money market investments Deposits Total short-term investments

Group 2007 2006 - - 233.6 226.0 233.6 226.0

Parent company 2007 2006 - - - -

Maturities of short-term investments within 3-6 months - - - after 6 months 233.6 226.0 - 233.6 226.0 -

Note 27 Cash and cash equivalents

SEK m Money market investments Deposits Cash and bank balances Total cash and cash equivalents

Group 2007 2006 254.0 308.2 259.7 270.0 427.1 479.2 940.8 1 057.4

Parent company 2007 2006 254.0 308.2 259.7 270.0 205.6 382.6 719.3 960.8

The granted amount in the bank overdraft facility is SEK 52.6 m (52.3) for the Group and SEK 52.6 m (52.3) for the Group. Disposable liquidity: Group SEK m 2007 2006 Total short-term investments 233.6 226.0 Total cash and cash equivalents 940.8 1 057.4 Unutilised bank overdraft facility 52.6 52.3 Less: pledged funds -233.6 -226.0 Total disposable liquidity 993.4 1 109.7

Parent company 2007 2006 - 719.3 960.8 52.6 52.3 - 771.9 1 013.1

Note 28 Shareholders’ equity SEK m Restricted shareholders’ equity Share capital Statutory reserve Total restricted shareholders’ equity Unrestricted shareholders’ equity Share premium reserve Profit brought forward Profit for the year Total unrestricted shareholders’ equity

Parent company 2007 2006

Total shareholders’ equity

1,565.9 1,776.4

65.8 933.3 999.1

15.9 439.2 111.7 566.8

15.9 511.0 250.5 777.3

Provisions to/reversals of reserves for doubtful receivables are included in the item External expenses in the income statement.

FI N A N C I A L S TAT EM EN T S

Proposed dividend for AGM decision, SEK per share Total amount, SEK m

3.00 190.6

4.00 258.3

There are no preferential rights to accumulative dividends. Number of shares At start of year Stock Split 2:1 At year-end

Class A Class B Class B Class B Class A Class B

Quota value SEK 2.00 Quota value SEK 2.00 Quota value SEK 1.00 Quota value SEK 1.00 Quota value SEK 1.00 Quota value SEK 1.00

2,125,728 30,772,864 2,125,728 30,772,864 4,251,456 61,545,728

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 two ongoing warrant programmes, which were adopted by resolution of a nine-tenths majority at the 2005 and 2007 Annual General Meetings, respectively, and which are directed at all permanent employees of the Broström Group and at employees of part-owned companies in which the Group’s ownership is at least 50%. The 2005 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 2,000,000 detachable warrants for the subscription of 2,000,000 Class B shares. Each employee was entitled to 2,500 warrants. If the offer was not fully subscribed, an additional maximum of 197,500 warrants could be subscribed. The subscription period ran through September 2005, and the debentures were subscribed at the nominal amount without interest. The debentures fell due for payment on 30 September 2005. The warrants are not employee stock options, but are entirely marketbased. They were acquired at market value based on the Black-Scholes 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 60.45. – 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 warrants was calculated to be SEK 2.50 per share. The price of each warrant was SEK 3.13 for series 2005:1 and SEK 4.25 for series 2005:2. Each warrant entitles its bearer to subscribe for one share at a price of SEK 78.60, 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 5.35 for each warrant in series 2005:1 and SEK 8.40 for each warrant in series 2005:2. At the time of exercise in September 2007 Broström’s share price was lower than the exercise price of SEK 78.60, and thus the warrants in series 2005:1 expired without value. On 31 December 2007 a total of 397,800 warrants had been subscribed, 400,000 had expired, and 1,200,000 had been cancelled. A total of 2,200 warrants were outstanding on the balance sheet date. Summary of number of warrants in the programme from 2005 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 Expired, unexercised warrants 2007 Number of warrants outstanding at 31/12/2007

2,000,000 - 733,100 - 1,200,000 66,900 - 62,500 4,400 - 2,200 2,200

The warrant programme from 2007 is designed according to the same principles as the 2005 warrant programme, with the exception that the 2007 programme does not include any debentures. Exercise of the two warrant series takes place in September 2009 and September 2010, respectively. Each employee was entitled to 2,500 warrants. If the programme was not fully subscribed, an additional maximum of 197,500 warrants could be subscribed. The price of each warrant was SEK 3.80 in series 2007:1 and SEK 5.10 in series 2007:2. Each warrant entitles its bearer to subscribe for one share at the exercise price of SEK 98.10. 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 75.50. – Volatility was calculated to be 25%. – Risk-free interest during the term of the warrants was calculated to be 4.1%. – The anticipated yearly dividend during the term of the warrants was calculated to be SEK 4.00 per share. As per 31 December 2007, 419,400 warrants had been subscribed and 1,300,000 had been cancelled. A total of 280,600 warrants were outstanding on the balance sheet date. Summary of number of warrants in the programme from 2007 Number of warrants upon issue in 2007 Warrants subscribed in 2007 Warrants cancelled in 2007 Number of warrants outstanding at 31/12/2007

2,000,000 -419,400 -1,300,000 280,600

Note 29 Other reserves Recalculation SEK m reserve Opening balance, 1/1/2006 57.1 Exchange rate differences -343.9 Derivative instruments - Tax, derivative instruments - Closing balance, 31/12/2006 -286.8 Exchange rate differences Closing balance, 31/12/2007

Hedge reserve 5.2 -0.7 -4.7 0.2 0.0

Total 62.3 -344.6 -4.7 0.2 -286.8

- -

-136.0 -422.8

Note 30 Deferred tax liability SEK m Deferred tax liabilities Non-current assets Docking expenses Other Total deferred tax liabilities

Group 2007 2006

Parent company 2007 2006

477.8 4.1 0.1 482.0

489.9 3.7 1.4 495.0

- - - -

Deferred tax assets Non-current assets Tax-loss carryforwards Other Total deferred tax assets

1.1 1.9 0.6 3.6

2.0 11.2 0.8 14.0

- 1.9 - 1.9

11.2 11.2

Total deferred tax (net)

478.4

481.0

1.9

11.2

All tax-loss carryforwards deemed possible to utilise have been taken into account.

FI N A N C I A L S TAT EM EN T S

Deferred tax assets and liabilities are offset when there is a legal offsetting right. The offset amounts are as follows:

The change in the fair value of plan assets during the year was as follows:

SEK m 2007 Deferred tax liabilities Paid after more than 12 months 462.1 Paid within 12 months 19.9 482.0

449.6 45.4 495.0

Deferred tax assets Utilised after more than 12 months 2.7 Utilised within 12 months 0.9 3.6

8.2 5.8 14.0

Total deferred tax (net)

2006

478.4

481.0

The gross change pertaining to deferred taxes is as follows: SEK m 2007 At start of year 481.0 Exchange rate differences -2.8 Acquisition of subsidiary 0.2 Sale of subsidiaries (Note 41) - Reporting in income statement (Note 12) 20.6 Tax reported in other reserves (Note 29) -20.6 At year-end 478.4

2006 473.1 -12.6 -0.3 73.0 -52.2 481.0

2006 26.5 5.7 -2.0 -0.1 -1.0 29.1

The pension liability (not defined benefit) pertains primarily to employees of the French subsidiary Broström Tankers SAS. Pension obligations, defined benefit SEK m Obligations in the balance sheet for pension benefits Reporting in the income statement pertaining to pension benefits

Group 2007

2006

2.1

1.9

2.8

Current service cost Interest expense Anticipated return on plan assets Actuarial net losses Total, included in personnel costs, Note 11

2006 20.3 1.1 -4.4 -1.4 3.0 -0.1 18.5

2.2 1.1 -0.9 - 2.8

2.1 1.2 -1.1 2.2

The actual return on plan assets was SEK 0.3 m (-3.2). The most important actuarial assumptions used were as follows: Discount rate Anticipated return on plan assets Future salary increases Future pension increases

Group 2007 29.1 3.0 -2.4 -0.8 1.5 30.4

Group 2007 18.5 0.9 -0.6 1.7 1.7 -0.1 -2.3 19.8

The amounts reported in the income statement are as follows:

Note 31 Pension obligations SEK m Liability at start of year Provision during the year Utilised during the year Reversed during the year Translation difference Liability at year-end

SEK m At start of year Anticipated return on plan assets Actuarial losses (-)/gains (+) Exchange rate differences Employer contributions Claims paid Settlements At year-end

4.7% 5.8% 4.5% 2.0%

4.4% 5.4% 4.5% 1.6%

Group SEK m 2007 2006 Plan assets consist of the following: Equities 26% 27% Fixed-income securities 59% 57% Other 15% 16% At year-end 100% 100% As per 31 December Present value of defined benefit obligation 27.8 29.8 Fair value of plan assets -19.8 -18.5 Deficit (+)/Surplus (-) 8.0 11.3 Experience-based adjustments of defined benefit obligations

-2.8

4.4

Experience-based adjustments of plan assets

2.2

The pension benefits reported in the balance sheet have been calculated as follows:

The anticipated contribution to the plan for 2008 amounts to SEK 1.8 m (2.3).

Present value of funded obligations Fair value of plan assets

27.8 -19.8 8.0

29.8 -18.5 11.3

Unreported actuarial losses Net debt in balance sheet

-5.8 2.2

-9.4 1.9

29.8 2.2 1.1 -2.8 2.5 -0.1 -4.7 -0.2 27.8

24.7 2.1 1.2 4.1 -2.2 -0.1 29.8

The change in the defined benefit obligation during the year was as follows: At start of year Current service cost Interest expense Actuarial losses (+)/gains(-) Exchange rate differences Claims paid Settlements Payroll tax on employer contributions At year-end

FI N A N C I A L S TAT EM EN T S

Note 32 Other non-current noninterest-bearing liabilities SEK m Dissolved Position Year 2007 31/12/2007 08 09 10 11 12 13 Total French tax leasing 26.9 114.1 26.9 24.8 20.0 17.0 17.0 8.3 114.1

French tax leasing Broström has participated in a tax leasing arrangement for the vessels BRO ELIZABETH, BRO ELLEN, BRO ETIENNE, BRO EDWARD and BRO ELLIOT, which was granted 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 result from the tax leasing arrangement is reported in the income statement amount external operating expenses and personnel costs. The BRO ELIZABETH was released from the lease in 2006 according to the agreement. However, the vessel still has amounts that are being recognised as revenue until the vessel is eight years old (2009). The BRO ELLEN was released from the lease in 2007 according to the agreement. However, the vessel still has amounts that are being recognised as revenue until the vessel is eight years old (2010).

Note 33 Debenture loans SEK m Partners in foreign subsidiaries

Group 2007 2006 14.8 29.5 14.8 29.5

Parent company 2007 2006 - - -

Partners in foreign subsidiaries Pertains to a debenture loan in a subsidiary of Broström Tankers SAS, Paris, in which Broström’s ownership amounts to 78.75%. The loan gives 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. The debenture loan in the subsidiary to the BRO ELIZABETH was dissolved on 1 October 2007.

Note 34 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 2007 2006 578.6 122.2 3,961.8 3 ,871.8 274.1 304.4 4,814.5 4,298.4

Parent company 2007 2006 551.0 258.8 - 809.8

91.0 274.8 365.8

-328.8

-309.8

-40.0

4,167.3 3,969.6

500.0

325.8

-647.2

1,838.9 1,446.1 2,328.4 2,523.5 4,167.3 3,969.6

500.0 - 500.0

325.8 325.8

Most of the 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 2007 2006 724.6

555.9

Parent company 2007 2006 -

Net debt (at booked rate) Interest-bearing liabilities 4,814.5 4,298.4 809.8 365.8 Cash and cash equivalents -1,174.4 -1,283.4 -719.3 -960.8 3,640.1 3,015.0 90.5 -595.0 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. Principal/option sum maturity date SEK m Within 1 year After 1 but within 5 years After 5 years

Group 2007 2006 21.6 33.1 127.8 102.3 275.6 497.6 425.0 633.0

Liquidity analysis (months) SEK m <1 Loans 72.4 Trade payables 167.3 Other noninterest-bearing liabilities - 239.7

Parent company 2007 2006 - - - - -

Group 1-3 3-12 >12 78.4 496.4 4 167.3 - - 97.0 - 175.4 496.4 4,167.3

Note 35 Accrued expenses and deferred income Group Parent company SEK m 2007 2006 2007 2006 Accrued expenses Vessel expenses 140.2 125.8 - Personnel costs 84.9 81.1 7.6 7.5 Interest expenses 42.8 39.1 10.0 3.5 Other expenses 16.9 14.4 - Deferred income Charter hires 7.3 8.9 - Other income 2.5 2.6 0.5 0.7 294.6 271.9 18.1 11.7

Note 36 Pledged assets SEK m Liabilities to credit institutions Cash and cash equivalents Net assets in subsidiaries Floating charges Vessel mortgages

Group 2007 2006 233.6 950.3 3.5 4,628.7 5,816.1

226.0 1,029.2 3.5 4,523.5 5,782.2

Parent company 2007 2006 - - 3.5 - 3.5

3.5 3.5

FI N A N C I A L S TAT EM EN T S

Note 37 Contingent liabilities

Note 41 Sale of subsidiary

Group Parent company SEK m 2007 2006 2007 2006 Guarantees and other contingent liabilities 17.6 20.6 - Contingent liabilities for the benefit of: Subsidiaries - - 3,453.2 3,296.9 Associated companies 48.5 62.5 - 66.1 83.1 3,453.2 3,296.9

Contingent liabilities for associated companies are a joint and several payment obligation that the Group has for financing of the vessel CILAOS.

Broströms Resebyrå AB was sold on 4 May 2006. Group SEK m 2007 2006 Intangible non-current assets - 6.1 Tangible assets - 1.8 Shares in associated companies - Financial 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 the sale of a subsidiary - 15.2 Cash and cash equivalents in sold subsidiary - 1.7 Total purchase price paid - 16.9

Note 38 Related party agreements

Note 42 Cash flow from investing activities

Of net sales in the parent company, Group companies accounted for 96.0% (86.9). Purchases from Group companies accounted for 6.7% of total (4.1). In other respects, no related party transactions were made during the year. With respect to remuneration of key persons, see Note 9.

SEK m Investments as per balance sheet Acquisition of minority share Exchange rate differences Acquisition of subsidiary 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

Assets in associated companies concerned

172.2

182.9

Note 39 Other adjustment items 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 Dissolution of negative goodwill Other

Group 2007 -11.9 -28.6 -67.2 -14.3

2006 -15.0 -29.7 -91.9 -112.2

1.3 -117.2 -3.8 -241.7

2.5 -246.3

Note 40 Acquisition of subsidiary On 1 May 2007, 100% of Petroships Group was acquired, a group of companies in Singapore and Malaysia that operates a fleet of nine small and intermediate product tankers in Southeast Asia. Specification of acquired net assets and negative goodwill SEK m Purchase price paid including acquisition costs Exchange rate difference Agreed purchase price including acquisition costs Fair value of acquired net assets Negative goodwilll

2007 324.9 -5.3 319.6 -436.8 117.2

The fair value of tangible assets has been calculated as the average value of external valuations of vessels at the time of acquisition. Through the acquisition, a dissolution of negative goodwill arose in the accounting of SEK 117.2 m. A review has been performed of intangible assets, but no assets that can be capitalised have been identified.

Group 2007 -757.2 -5.5 -8.1 -433.3

2006 -1,687.5 -126.1 -

108.4 -134.4 107.5 1.5 -1,121.1

-169.8 389.0 -0.4 -1,594.8

Note 43 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 96.7 m, has been offset in the accounts against future undertakings in an equivalent amount. The amount has been deposited in a blocked bank account and is only available for the undertaking in question; the excess amount of SEK 200.2 m is reported as a non-current interest-bearing liability. The profit from the pickle-lease arrangement is reported in the income statement under 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.

Assets and liabilities as a result of the acquisition are as follows. SEK m Fair value Tangible assets 588.9 Current assets 224.3 Non-current liabilities -213.1 Current liabilities, interest-bearing -9.0 Current liabilities, noninterest-bearing -154.3 Acquired net assets 436.8 Cash and cash equivalents in acquired subsidiary -111.9 Change in Group’s cash and cash equivalents upon acquisition 324.9

Book value 321.3 224.3 -213.1 -9.0 -154.3 169.2 -

No acquisitions were made in 2006.

FI N A N C I A L S TAT EM EN 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 repurchases Share premium reserve, unrestricted shareholders’ equity Profit for the year Total

SEK 503,060,987 69,552,339 -135,336,914 17,848,318 111,664,329 566,789,059

The Board of Directors and Managing Director propose the following appropriation of profits to the Annual General Meeting: Dividend to the shareholders, SEK 3.00 per share 191,298,552 Profit carried forward 375,490,507 Total 566,789,059 The results and financial position of the Group and parent company are shown in the following income statements, balance sheets, cash flow statements and notes. The income statements and balance sheets will be presented to the Annual General Meeting on 29 April 2008 for adoption. Pursuant to a resolution made by the Annual General Meeting on 3 May 2007, in 2007 and through 20 January 2008 the Board repurchased 1,646,000 of the company’s shares at a price of SEK 62,135,456. The total holding of treasury shares is 2,254,000 shares, which were purchased for a total amount of SEK 147,037,322. This amount uses reported unrestricted earnings as per 31 December 2007, at the same time that the shares are not entitled to the dividend, corresponding to SEK 6,762,000. Similarly, any additional shares repurchased up until the Annual General Meeting will reduce the amount of the dividend and reduce unrestricted earnings available for the dividend. Information about this will be provided at the Annual General Meeting. Disclosures about share repurchases are provided on a regular basis on the company’s website. The total number of shares outstanding on 31 December 2007 was 65,797,184.

Certification The consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU and give a true and fair view of the Group’s financial position and results of operations. The financial statements of the Parent Company have been prepared in accordance with generally accepted accounting principles in Sweden and give a true and fair view of the Parent Company’s financial position and results of operations. The statutory Administration Report of the Group and the Parent Company provides a fair review of the development of the Group’s and the Parent Company’s operations, financial position and results of operations and describes material risks and uncertainties facing the Parent Company and the companies included in the Group.

Göteborg, 18 March 2008

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 18 March 2008

Bror Frid Authorised Public Accountant

Birgitta Granquist Authorised Public Accountant

FI N A N C I A L S TAT EM EN T S

Auditors’ report To the Annual General Meeting of the shareholders of Broström AB (publ) Corporate identity number 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 2007. The company’s annual accounts and the consolidated accounts are included in the printed version on pages 45 - 74. The Board of Directors and the Managing Director are responsible for these accounts and the administration of the company as well as for the 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 reasonable assurance that the annual accounts and the consolidated accounts are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the accounts. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the Managing Director and significant estimates made by the Board of Directors and the Managing Director when preparing the annual accounts and consolidated accounts as well as 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 other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. The annual accounts 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 (IFRS) 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 administration report is consistent with the 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 administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

Göteborg, 18 March 2008

Bror Frid Birgitta Granquist Authorised Public Accountant Authorised Public Accountant

CO R P O R AT E G OV ER N A N C E REP O R T

Corporate governance report Broström’s Board and management strive as far as possible to meet the demands on corporate governance made by shareholders and other stakeholders. 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 company

2007 AGM

operating under Swedish jurisdiction. Corporate governance at

The last AGM was held on 3 May 2007 at Konserthuset in Göte-

Broström is based on Swedish legislation, mainly the Swedish

borg. At the meeting, 287 (335) shareholders participated, repre-

Companies Act, the listing agreement with the Stockholm Stock

senting 34% (38) of the number of shares and 58% (61) of the votes.

Exchange, and other relevant rules and guidelines. The Swedish

The AGM discharged the departing Board from liability and

Code of Corporate Governance (“the Code”) is part of the listing

resolved to re-elect all of the current directors, with Lars-Olof

agreement with the Stockholm Stock Exchange.

Gustavsson as Chairman. Bror Frid and Birgitta Granquist, both

Broström applies and adheres to the Code, with the only departure that the company does not have a nominating committee (see below under Nomination procedure).

This corporate governance report has not been reviewed by the

company’s auditors.

from Öhrlings PriceWaterhouseCoopers, were elected as new auditors for a mandate period of four years. The AGM authorised the Board to decide on acquisitions and transfers of treasury shares corresponding to one-tenth of all of the shares in the company. In addition, the AGM authorised the Board to decide on new share issues on one or more occasions during the

Share capital

period until the next AGM, without pre-emption rights for the

On 31 December 2007, Broström’s share capital amounted to SEK

shareholders, of a maximum of 6,579,718 B-shares (corresponding

65.8 m (65.8). The number of shares was 65,797,184, broken down

to 3,289,859 shares before the split), for cash consideration.

into 4,251,456 Class A shares and 61,545,728 Class B shares. Follow-

In addition, the AGM resolved in favour of an issue of warrants

ing the 2:1 split carried out in 2007, the share quota value is SEK 1.

carrying the right to subscribe for a maximum of 2 million B-shares

Each A-share carries entitlement to ten votes, while each B-share

(1 million before the split) as part of Broström’s warrant pro-

carries entitlement to one vote. All shares carry equal entitlement

gramme (see below).

to a share of company’s profit and assets.

The AGM resolved to amend the Articles of Association in order to enable a 2:1 stock split whereby each existing share would

Annual General Meeting

be split into two new shares. The share dividend was set at SEK

The Annual General Meeting (AGM) of Broström AB (publ) is the

4.00 per share (post-split).

shareholders’ forum for exercising their direct influence within the

Seven of the total of nine directors as well as the company’s

Broström Group. The AGM’s duties are governed by the Swedish

auditors were present at the meeting. Minutes from the last AGM

Companies Act and the company’s Articles of Association, which

are available at www.brostrom.com.

are available at www.brostrom.com. The AGM shall be held not later than six months after the end of the financial year. Notice of

2008 AGM

the AGM must be issued not earlier than six weeks and not later

The next AGM will be held on 29 April 2008 at Lorensbergs

than four weeks prior to the meeting.

teatern, Göteborg.

All shareholders have an equal right to present proposals and participate at general meetings of shareholders. Each B-share car-

Board of Directors

ries entitlement to one vote, and each A-share carries entitlement

The Board’s duties are regulated by the Articles of Association and

to ten votes. Shareholders who are registered in the shareholder

the Swedish Companies Act, as well as by the rules of procedure

adopted by the Board each year. These stipulate the division of

the right to participate in the AGM, personally or by proxy.

duties and responsibility between the Board, its chairman, and the

Decisions at AGMs are normally made by a simple majority.

company’s managing director (MD).

However, for certain matters, the Swedish Companies Act requires

The Board is responsible for adopting strategies, business

a higher percentage of shares and votes represented at an AGM in

plans and budgets, and interim reports and preliminary earnings

order for a proposal to be approved.

reports. In addition, the Board is responsible for appointing and

Corporate governance structure External auditors

Shareholders via AGM

Nomination procedure

Board of Directors

Audit and Compensation Committees

MD and Group Management* Staff functions: Finance Communication/IR Quality Assurance Strategic Development

*Supervisory Committee

Operative functions: Commercial Fleet Management Asset Management Administration/Human Resources ICT Ship Agencies

Important external rules that affect Broström’s governance: Swedish Companies Act Listing Agreement with Stockholm Stock Exchange Swedish Code of Corporate Governance Examples of policies and codes: The Board’s Rules of Procedure Code of Conduct SHE policy (Safety, Health and the Environment) Information policy, finance and credit policies, accounting manual, etc. Processes for internal control and risk management Employee Manual

The operative functions are headed by the Executive Committee.

removing the MD and with deciding on the compensation and

Board committees

benefits of the MD and Deputy MD. The Board also decides on

Audit Committee

material changes in Broström’s organisation and operations. The

The Board has an audit committee that is tasked with examining and

rules of procedure also define monetary limits for when a board

preparing decisions by the Board with respect to financial informa-

decision is required for investments, acquisitions and loans.

tion and with monitoring the focus of the company’s external audit and the auditors’ independence. The committee is also responsible

Composition of the Board

for monitoring the Board’s annual report on internal control. The

The Board shall consist of at least four and not more than nine direc- members of the Audit Committee are Lars-Olof Gustavsson (comtors, with not more than an equal number of deputies. The directors

mittee chair), Stig-Arne Blom and Leif Rogersson. During the time

and their deputies are elected by the AGM for a term extending

up until the publication of this annual report, the Audit Commit-

until the end of the first AGM that is held after the year in which

tee held five meetings which were documented by minutes and

they were appointed. There is no term limit for individual directors.

reported to the Board.

However, according to practice there is an upper age limit of 70 for board members. The Board has consisted of eight AGM-elected Directors since

Compensation Committee The Board has also appointed a compensation committee consisting

the 2007 AGM. None of the AGM-elected Directors may have or

of Lars-Olof Gustavsson and Board member Leif Rogersson. The

have an operative role within the Broström Group. Nor have any

committee is tasked with drawing up guidelines on compensation

of these Directors been employed by the Broström Group during

of the MD and Deputy MD. These guidelines are then adopted by

the past five years. With the exception of Fredrik Svensson, who is

the AGM. During the time up until the publication of this annual

Managing Director of Arvid Svensson AB (see page 85), at year-end

report, the Compensation Committee held four meetings, which

no AGM-elected Director had any directorships or other relations

were documented by minutes and reported to the Board. Directors’

with any of Broström’s ten largest shareholders. The other seven

fees are set by the AGM based on recommendations from Broström’s

AGM-elected Directors meet all the requirements made by the

A-shareholders.

Code regarding directors’ independence in relation to the company or major shareholders.

The work of the Board

In addition to the AGM-elected Directors, the Board includes

The Board constitutes itself at the first board meeting held directly

one member, Rolf Öström, who has been appointed by the Swedish

after the AGM (the statutory meeting). At this meeting the Board

Ship Officers’ Association.

also adopts its rules of procedure and instructions for the MD. Since the 2007 AGM the Board held seven meetings up until the adoption

Chairman of the Board

of this annual report. The main items of business covered at these

At its statutory meeting on 3 May 2007, the Board re-elected Lars-

meetings are outlined below:

Olof Gustavsson as Chairman of the Board. The Chairman monitors May Interim report January-March the development of the company’s business and is responsible for en- May Statutory meeting, adoption of rules of procedure and MD’s suring that the other Directors are continuously provided with the information they need to perform their board duties and maintain quality in accordance with the Swedish Companies Act. Lars-Olof Gustavsson has been Chairman of the Board since 1995.

instructions, appointment of company signatories Aug. Interim report January-June, strategy discussions Nov.

Interim report January-September

Dec.

Budget and business plan for 2008

Feb. Preliminary report on 2007 results, report on evaluation of the Board’s work March Annual Report 2007

CO R P O R AT E G OV ER N A N C E REP O R T

The Board’s administrative director, Margareta Alestig Johnson,

shipping as well as logistics. One of the directors has experience

served as company secretary for the Board during the year.

from the oil industry. In addition, several directors have extensive

At the start of 2007 the Board focused on, among other things, the new, long-term partnership with Reederei Claus-Peter Offen

knowledge in economics, financing matters and law. The A-shareholders strive for the greatest possible openness

involving eight vessels. In addition, decisions were made on a

and therefore welcome proposals and views from other sharehold-

three-year bond issue and the sale of two older product tankers.

ers. Shareholders who wish to nominate a director to the board,

In May the Board’s work was focused on Broström’s acquisi-

or who for other reason want to contact a representative of the

tion of Petroships Group and the company’s expansion in Asia. At

A-shareholders, can contact the Chairman of the Board.

the same time, the decision was also made to acquire two product

Managing Director, Group Management and organisation

tankers from Väderötank. This acquisition was made in partnership with Erik Thun AB. During the summer the Board decided to sell Broström’s ow-

The Managing Director (MD) manages the business in accordance

nership stakes in the ship brokerage Percy Tham i Oxelösund AB

with the adopted rules of procedure and the Board’s instructions.

and in Norrköpings Hamn & Stuveri AB.

The MD is responsible for ensuring that the Board receives infor-

In the autumn the Board treated the issue of a new, functional organisation and share repurchases.

mation and necessary decision-making documentation, and makes presentations at board meetings. However, neither the MD nor any

In 2007, an evaluation of the Board’s work was performed by

other senior executives of the company are members of the Board.

an external consultant. The conclusions drawn from this evalua-

The MD keeps the Board and Chairman informed about the com-

tion are that the board work has been performed very well and is

pany’s and Group’s financial position and development.

characterised by stability and continuity, and that the Board has a

Assisting the MD in 2007 was a Group Management Team

well balanced combination of competencies. Attendance at board

comprising five other members: Deputy MD Anders Dreijer,

and committee meetings is shown in the table below:

Margareta Alestig Johnson, Tore Angervall, Patrick Decavèle and

Compensation

Audit

Committee

Stig-Arne Blom

Peter Cowling

Carel van den Driest

Lars-Olof Gustavsson

Claes Lundblad

Leif Rogersson

Director

Board

Wladimir Pallu de Beaupuy. The Group Management team held six formal meetings in 2007 and a large number of informal meetings. These meetings are presided by the MD, who makes decisions in consultation with the other members. Ahead of 2008 Broström established a new management

structure consisting of a Supervisory Committee and an Executive Committee. The change is part of Broström’s transformation from

a legally and geographically based structure to a functional organi-

Fredrik Svensson

sation. The aim of the new organisational structure is to be even

Wilhelm Wilhelmsen

better at meeting and exceeding the expectations of Broström’s

Rolf Öström

Total number of meetings

8.4

2.8

customers, regardless of whether they are local players or global are made in pace with Broström’s growth. The new functional

Average no. of directors in attendance

operators. It is important to be able to meet the requirements that organisation is illustrated on page 77.

Nomination procedure

The Supervisory Committee consists of the following members:

Broström does not have a nominating committee. Instead, an

• Lennart Simonsson, Managing Director and Chief Executive

agreement exists between the company’s A-shareholders to

Officer

establish consensus on nomination matters, which are drafted by

• Anders Dreijer, Deputy Managing Director

the A-shareholders for decision by the AGM. This procedure was

• Margareta Alestig Johnson, Director Administration/HR

also approved by the preceding AGM. The A-shareholders also

• Tore Angervall, Director Asset Management

make recommendations for a chairman to preside over the AGM,

• Patrick Decavèle, Director Asset Management France

the Chairman of the Board, directors’ fees, election of auditors and

• Renè Y Rostant, Director Strategic Development

auditors’ fees. The Board’s aim is to maintain breadth and diversity regarding the competence and experience of its members. Certain directors on the Board have experience in both Swedish and international

The Executive Committee includes the following members: • Lennart Simonsson, Managing Director and Chief Executive Officer

CO R P O R AT E G OV ER N A N C E REP O R T

• Tomas Berntsson, Director Commercial Europe

versa. Information on auditors’ fees is provided in Note 8 on page 64.

• Wladimir Pallu de Beaupuy, Director Commercial Asia/Atlantic • Olle Noord, Director Fleet Management

Related party agreements

• John Fields, Director Quality Assurance

There are no related party agreements.

• Carl Magnus Greftén, Director ICT • Margareta Alestig Johnson, Director Administration/HR

Compensation matters

• Bo Svensson, Director Finance

Broström strives to offer its employees an attractive and competitive compensation package. Reward is performance-related and linked to

The members of the Supervisory Committee and Executive

results both for the company and the individual employee over the

Committee are presented on page 83 and 81, respectively, of this

short and long term.

annual report. Legally the Broström Group consists of the parent company,

All of Broström’s permanent employees receive compensation in the form of a base salary. All employees are also included in a general

Broström AB (publ), 12 subsidiaries and four associated companies,

profit-sharing system. Additionally, all permanent employees of

which are listed in Note 19 (page 68) and Note 21 (page 68). All

the Group have been invited to participate in warrant programmes

operating subsidiaries and associated companies report directly

offered by Broström.

to the MD or Deputy MD on a monthly basis. The subsidiary and associated company boards consist preferentially of members of

Profit-sharing system

Broström’s Group Management. All chairman positions are held

All employees of the Group – including shore-based employees

by MD Lennart Simonsson or Deputy MD Anders Dreijer.

as well as seamen, including contract employees – are included in a profit-sharing system that is based on the Group’s earnings per-

External audit

formance.

Broström’s auditors are elected by the AGM for a term of four

The amount distributable in the profit-sharing system is based on

years. The current term was begun in 2007, and the next elec-

the return on capital employed. Profit shares become payable when

tion of auditors will take place at the 2011 AGM. The company’s

the return exceeds the STIBOR rate as per 1 January in the current

auditors are Bror Frid and Birgitta Granquist, both from Öhrlings

year by 3 percentage points, and increase gradually to a maximum

PricewaterhouseCoopers AB. Authorised Public Accountant Bror

level of STIBOR plus 11 percentage points. For 2007 this entailed an

Frid is Group Auditor. In addition to Broström, Bror Frid is auditor

interval between 6.75% and 14.75%. The total profit share is equivalent

for the listed companies Gunnebo, VBG and KappAhl, among

to one-fourth of the Base Amount to two times the Base Amount,

others. Öhrlings PricewaterhouseCoopers has had auditing assign-

depending on the employee’s position.

ments from Broström since 1982.

A similar system is in place for the Group Management, which

Bror Frid (born 1957) and Birgitta Granquist (born 1964) are

pays a profit share when the return on capital employed reaches

both Authorised Public Accountants at Öhrlings Pricewaterhouse-

10%-15% according to a progressive scale. The MD can receive a

Coopers AB. Bror Frid has been a deputy auditor for Broström

maximum of 50% of his annual salary, and the other executives a

since 1998, while Birgitta Granquist has not had any previous,

maximum of 30%.

formal assignments with the company. The company’s deputy

Based on consolidated profit for 2007, the dividend from the

auditors since the 2007 AGM are Olof Enerbäck (born 1956) and

profit-sharing system will amount to SEK 3.1 m for shore-based

Johan Rippe (born 1968) – both Authorised Public Accountants

employees and SEK 2.6 m for seamen. No profit share will be payable

at Öhrlings PricewaterhouseCoopers AB. Neither of these has had

to members of the Group Management. For 2006, the bonus based on

previous assignments with Broström.

consolidated profit was SEK 5.7 m for shore-based employees, SEK 3.9

In brief, the auditing assignment has been performed through

m for seamen, and SEK 0.7 m for Group Management.

continuous audits and review of the annual report. Bror Frid participated in a number of meetings with the Audit Committee and

Warrant programmes

at the Board’s meeting in February. The auditors have also held spe-

As per 31 December 2007 Broström had two warrant programmes in

cial meetings for reporting to the Group Management. Aside from

progress, which were approved by a nine-tenths majority at the 2005

ordinary auditing duties, Öhrlings PricewaterhouseCoopers assists

and 2007 Annual General Meetings, respectively. The programmes

Broström primarily with consulting on tax matters. This consulting

are directed at all permanent employees of the Broström Group and

is not considered to constitute any conflict of interest.

to employees of partly owned companies in which Broström’s owner-

No senior executives at Broström have had any other position with either of the auditing firms during the past five years or vice

ship amounts to more than 50%. The aim of the warrant programmes is to stimulate interest in

CO R P O R AT E G OV ER N A N C E REP O R T

the company’s operations and earnings performance, as well as to

two warrant series will take place in September 2009 and September

energise employees and enhance their sense of belonging with the

2010, respectively. Each employee had the right to 2,500 warrants. If

company.

the offer was not fully subscribed, an additional maximum of 197,500

The number of warrants in the programmes has been recalcu-

warrants could be subscribed. The price of one warrant was SEK

lated in accordance with the 2:1 stock split carried out by Broström

3.80 for series 2007:1 and SEK 5.10 for series 2007:2. One warrant

on 4 June 2007. The number of warrants has therefore doubled

carries entitlement to subscribe for one share at a subscription price

compared with the previously reported number, and the price per

of SEK 98.10.

share has been halved. The warrant programme from 2005 is based on the issuance of two debentures, each with a nominal value of SEK 1,000 and linked

As per 31 December 2007 the total number of warrants was 419,400, and 1,300,000 warrants had been cancelled. The number of unsubscribed warrants amounted to 280,600.

to two warrant series containing a total of 2,000,000 detachable

Warrants exercised in the warrant programme entail an increase

warrants for the subscription of 2,000,000 Class B shares. Employ-

in the number of shares and votes by 1.0% and 0.7%, respectively.

ees were offered to purchase 2,500 warrants each. If the offer was

There was no dilutive effect in terms of value on the balance sheet

not fully subscribed, an additional maximum of 197,500 warrants

date.

could be subscribed in the event of an additional allocation. The subscription period ran through September 2005, and the

Previous incentive programmes

debenture loans were subscribed at the nominal amount without

The company has previously directed a total of three warrant pro-

interest. The loans fell due for payment on 30 September 2005.

grammes at employees. Two of these expired prior to year-end 2005,

The warrants were acquired at market value based on the

while the third expired in 2006.

Black-Scholes option pricing model. The valuation was performed by an independent expert. The factors used to calculate the market

Other benefits

value were the share price at the time of issue (SEK 60.45), volatility

Aside from the use of a company car for a limited number of persons,

(25%), risk-free interest during the term of the warrants (3%), and

in 2007 Broström’s employees did not receive any material benefits

the anticipated yearly dividend during the term of the options

other than their fixed and variable salaries.

(SEK 2.50 per share).

The price of each warrant was SEK 3.13 for series 2005:1 and

SEK 4.25 for series 2005:2. Bearers of warrants in series 2005:1 were entitled to subscribe for

The AGM-elected Directors are paid a directors’ fee that is set according to a decision by the AGM, which is to be apportioned

one new Class B shares in Broström AB (publ) in September 2007

among the directors at the Board’s discretion. From the AGM on

at a subscription price of SEK 78.60, which corresponds to 130%

3 May 2007 until the next AGM, the directors’ fee is SEK 2,270,000

of the average, volume-weighted price paid for Broström’s Class B

(2,175,000). In addition, pursuant to a decision by the AGM, the

shares on the Stockholm Stock Exchange during the period 1 June

committees appointed by the Board receive a fixed fee of SEK

2005–14 June 2005. At the exercise date in September 2007, Bro-

320,000 (275,000), to be apportioned at the Board’s discretion.

ström’s share price was lower than the exercise price, and thus the

warrants in series 2005:1 expired without value. For series 2005:2,

director’s fee of SEK 612,500 (550,000) in 2007, plus a fee of SEK

the same right applies in September 2008.

107,500 (70,000) for committee work. No other remuneration or

The warrants that were not purchased were offered to future

The Chairman of the Board, Lars-Olof Gustavsson, was paid a

benefits were paid to the Chairman. The other directors received a

new employees. Such an offer was made in autumn 2006. The price

combined total of SEK 1,610,000 (1,400,000) in directors’ fees, which

was SEK 5.35 for each warrant in series 2005:1 and SEK 8.40 for each

were paid out in the amount of SEK 230,000 per director. A fee of

warrant in series 2005:2. On 31 December 2007 a total of 397,800

SEK 190,000 (117,500) was apportioned among the other direc-

warrants had been subscribed, 400,000 had expired, and 1,200,000

tors for committee work. The law firm at which company director

had been cancelled. A total of 2,200 warrants were outstanding.

Claes Lundblad works was paid a fee of SEK 57,000 in 2007 for

Warrants exercised in the warrant programme entail an increase

assignments he was requested to perform. A combined total of SEK

in the number of shares and votes by 0.6% and 0.4%, respectively.

244,750 (539,767) in fees were paid to this law firm for assignments it

There was no dilutive effect in terms of value on the balance

was hired to perform.

sheet date.

The warrant programme from 2007 is designed according to the

Directors’ fees

Apart from reimbursement for travel expenses, no other remu-

neration or benefits were paid. The employee representatives on

same principles as the 2005 programme, with the exception that the

the Board do not receive any fee for their board duties, other than

2007 programme does not include any debenture. Exercise of the

reimbursement for costs in connection with their board work.

Remuneration of Managing Director and Group Management

SEK m

Base salary

Profit share

Other benefits

Managing Director

4.7 (4.4)

– (0.3)

0.1 (0.1)

1.8 (1.5)

Other members of Group Management 10.7 (10.4)

– (0.4)

0.8 (0.6)

Total

– (0.7)

0.9 (0.7)

15.4 (14.8)

Pension costs Total

No. of warrants purchased

6.6 (6.3)

101,250

3.1 (2.5)

14.6 (13.9)

116,250

4.9 (4.0)

21.2 (20.2)

217,500

Compensation of the Managing Director and Group Management

One member has a defined contribution pension that is payable

Starting in 2007, compensation and the terms of employment for

defined contribution pension plan that becomes payable at 65

the MD and Deputy MD are set by the Board, based on guidelines

years of age. Two of the members of Group Management have no

adopted by the Annual General Meeting. The MD decides on the

pension benefits other than the statutory pension, ITP pension

salary and terms of employment for the other members of the Group

or similar. All pensions for members of Group Management are

Management (see page 78).

vested. For all members, after reaching the statutory age of retire-

All remuneration of the MD and Group Management in 2007 is shown in the table above. Aside from the current Group Manage-

from 63 to 65 years of age. Another of the members has a lifetime

ment, no pension benefits are payable other than the statutory retirement pension, ITP pension or similar.

ment, no salary or other remuneration was paid during the year to former senior executives. Since the current warrant programmes

Notice period and severance pay

have been subscribed at market terms, they are not classified as

In the event the company serves notice, the MD is entitled by an

compensation or benefits.

agreement to two years’ salary, regardless of whether he receives compensation from another employer. The MD cannot trigger

Pension terms for the Managing Director and Group Management Pension premiums of SEK 1.5 m (1.5) above and beyond the ITP plan

severance pay himself. The MD and Broström are each bound to a six-month term of notice. With respect to other senior executives, an agreement has

were booked during the year as an expense for the MD. This pension

been made with one for severance pay equivalent to two years’

is a defined benefit obligation and is vested, which means that it will

salary, with another for severance pay equivalent to 25 months’

remain unaffected by any future employment. Pension benefits are

salary, with one for severance pay equivalent to 18 months’ salary,

payable between 60 and 65 years of age in an amount equivalent to

and with two executives entitling them to one year’s salary in the

75% of the MD’s annual salary at 60 years of age. After the MD has

event the company serves notice. Compensation from Broström

turned 65, no pension is payable other than statutory retirement

remains if payment is received from another employer. There is

pension and ITP pension.

no possibility for any of these executives to trigger severance pay

For the five other members of the Group Management, combined pension premiums of SEK 2.0 m (1.9) above and beyond the

themselves. In addition to the senior executives referred to above, an

ITP plan were booked during the year as an expense. For one of

agreement has been made with the managing directors of two

these executives, the pension is a defined benefit obligation. Pension

subsidiaries for severance pay equivalent to one year’s salary in the

benefits are payable between 60 and 65 years of age in an amount

event the company serves notice. These managing directors have

equivalent to 70% of the executive’s annual salary at 60 years of age.

no possibility to trigger severance pay themselves.

Executive Committee: Margareta Alestig Johnson, Olle Noord, Bo Svensson, Wladimir Pallu de Beaupuy, Lennart Simonsson (Chairman), Tomas Berntsson (Dep. Chairman), John Fields and Carl Magnus Greftén.

T h e Board ’ s report

The Board’s report The Board of Directors of Broström AB herewith submits its report on internal control concerning the financial reporting for the 2007 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

the “Instructions on the Code’s rules on reporting of internal

design and execution of these control activities are steered by

control” issued by the Swedish Corporate Governance Board

detailed accounting instructions at both the local and central

on 5 September 2006. In adhering to these instructions, the

levels. The system for the control activities will be further

Board limits its report to describing how the internal control

strengthened through the current integration of the compa-

regarding the financial reporting is organised.

ny’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

monitors 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 re-

establish a special internal audit function.

porting. The committee has performed a review of this risk for error and ascertained that the risk of error is within the frame-

Göteborg, March 2008

work of the quality requirements set by the Board. Further, the Audit Committee works together with the 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

SU P ERV I S O RY CO M M I T T EE

Margareta Alestig Johnson

Anders Dreijer

Lennart Simonsson

Deputy Managing Director, employed since 1984.

Managing Director, employed since 1982.

Born 1953, Swedish citizen.

Education: Business Economist.

Born 1961, Swedish citizen.

Education: M.Sc. Engineering.

Education: B.Sc. Econ.

Professional background: Senior positions within the Broström Group.

Professional background: Senior positions within the Broström Group. Prior to this, served with Peabody Group and Iwema Pack.

Director Administration/HR, employed since 2003.

Professional background: Senior positions in administration and finance for Swisslog, Applied Biosystems, SwedPower and SveaBanken. Holdings of shares and warrants in Broström AB: 5,000 B-shares, 9,000 warrants.

Formerly employed by Atlanticargo and the Johansson Group. Own holdings of shares and warrants in Broström AB: 197,442 A-shares, 639,276 B-shares and 101,250 warrants.

Born 1950, Swedish citizen.

Significant assignments outside Broström: Chairman of the Swedish Club, member of the European Community Shipowners’ Associations and the Swedish Shipowners’ Association. Holdings of shares and warrants in Broström AB: 192,084 A-shares, 412,540 B-shares and 101,250 warrants.

Patrick Decavèle

René Y Rostant

Tore Angervall

Director Asset Management France, employed since 1980.

Director Strategic Development, employed since 1982.

Director Asset Management, employed since 1970.

Born 1950, French citizen.

Born 1948, British citizen.

Born 1944, Swedish citizen.

Education: Ph.D. Econ.

Education: Master Mariner, Dip. Management studies, IMD Executive programmes, Associate of the Institute of Chartered Shipbrokers.

Education: B.A.

Professional background: Senior positions within the Broström Group. Previous employed by Alstom. Holdings of shares and warrants in Broström AB: None.

Professional background: Senior positions within the Broström Group, Chief Officer. Holdings of shares and warrants in Broström AB: 30,000 warrants.

Professional background: Senior positions within the Broström Group, including as subsidiary Managing Director and Shipping Manager. Holdings of shares and warrants in Broström AB: 7,000 B-shares and 6,000 warrants.

BOA R D O F D I REC 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, Mikroponent AB, Siem Capital AB and SJ AB.

Born 1948, Swedish citizen.

Other directorships: Chairman of Borås Wäfveri AB, AP&T, Pulsen AB, Liljedahlsbolagen 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: 154,000 B-shares, of which 70,000 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. Chairman 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: 100,000 B-shares, of which 80,000 are owned through companies.

BOA R D O F D I REC 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: 14,000 B-shares.

Born 1961, Swedish citizen. Education: M.Sc. Econ. Primary occupation: Managing Director of AB Arvid Svensson. Professional background: Various senior positions within the Arvid Svensson Group and for the last 10 years Managing Director of AB Arvid Svensson. Other directorships: Chairman of Case Investment AB. Director of Klövern, Balder, Dagon, IBS, Ramnäs Bruk AB and United Logistics. Holdings of shares and warrants in Broström AB: Through AB Arvid Svensson and other company 2,075,968 A-shares and 10,067,692 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.

Professional background: Practising attorney at Mannheimer Swartling Advokatbyrå and its predecessor, Mannheimer & Zetterlöf, since 1972. Partner since 1977.

Other directorships: Director of Anthony Veder Group N.V., Dura Vermeer Groep N.V., Darlin N.V., H.E.S. Beheer N.V., Kon Vopak N.V., Van Oord N.V. and Stork N.V.

Other directorships: Swedish member of ICC International Court of Arbitration. Visiting Professor of Law, School of Economics at the University of Gothenburg.

Holdings of shares and warrants in Broström AB: None.

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.

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 resse S

Head offices Broström AB (publ) SE-403 30 Göteborg, Sweden Östra Hamngatan 7 Tel: +46 31 61 61 00 Fax: +46 31 711 80 30 info@brostrom.se www.brostrom.se Broström Tankers Sweden SE-403 30 Göteborg, Sweden Östra Hamngatan 7 Tel: +46 31 61 60 00 Fax: +46 31 61 60 12 Telex: 21060 brotank s brotank@brostrom.se Broström Tankers Denmark Lindevej 16 DK-4300 Holbaek, Denmark Tel: +45 59 44 44 66 Fax: +45 59 44 44 60 Telex: 19505 btdk@dk.brostrom.com Broström Tankers Norway Yttersö Businesspark, Elveveien 34 NO-3262 Larvik, Norway Tel: +47 33 42 52 00 Fax: +47 33 42 52 10 atlantic@brostrom.no Broström Tankers France 52 avenue Champs Elysées, FR-75008 Paris France Tel: +33 1 42 99 66 66 Fax: +33 1 42 99 66 20 brotank.paris@brostrom.fr Broström Tankers Asia 460 Alexandra road # 31-02 PSA Building Singapore 119963 Tel: +65 6273 5677 Fax: +65 6273 3607 pacific@brostrom.no Broström Tankers Singapore 460 Alexandra road # 25-04 PSA Building Singapore 119963 Tel: +65 62 73 11 22 Fax: +65 62 73 22 00 gen@sg.brostrom.com Broström Ship Management 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 Bromarin 403 30 Göteborg, Sweden Östra Hamngatan 7 Tel: +46 31 61 61 66 Fax: +46 31 61 60 17 info@brostrom.se

Ship Agencies August Leffler & Son 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 www.leffler.se SwanFalk Shipping Box 733 SE-451 25 Uddevalla, Sweden Uddevalla Hamnterminal Box 543, 451 21 Uddevalla 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 Box 23, 374 21 Karlshamn Tullgatan 5 SE-374 35 Karlshamn, Sweden Tel: +46 454 154 75 Fax: +46 454 156 23 Telex: 4553 edstrom s shipagent@edstromshipping.se

Unér Shipping 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: 0706 12 70 93 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 Varberg Turbingatan, Box 333 SE-301 08 Halmstad , Sweden Tel: +46 11 211000 Fax: +46 11 188170 Bergkvara Agent for Karlskrona Hamngatan 1 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 Tel: +46 11 21 10 00 Fax: +46 11 18 81 70

G lossary

Ballast trip Sea time without cargo, positioned to port of loading. Bareboat charter Shipowner charters out vessels without crew, often for a lengthy period. The charterer pays all running costs while the bareboat hire is paid to the shipowner at a fixed amount on a monthly basis. Bunker The term for a vessel’s fuel, i.e.,the oil used in the vessel’s machinery. CERA Cambridge Energy Research Associates. www.cera.com Chemical tanker A tanker built for transporting chemicals. Clarkson Research Studies British company that provides statistical and analytical services concentrating on international shipping. www.clarkson.co.uk Commercial Management The shipowner transfers the marketing and operation of a vessel to an outside party against payment, often in the form of commission on gross income – and sometimes with an element of profit-sharing. Condensate A mixture of the heaviest components in natural gas. Condensate is in a liquid state under normal pressure and temperature. Contract of affreightment The shipowner agrees to transport a designated amount of cargo between agreed destinations over a certain period. It is often stipulated how long the intervals should be between each trip and the largest vessel size allowed.

Naphtha A clear, colourless, highly volatile liquid extracted from petroleum through distillation, consisting primarily of paraffin hydrocarbons. A semi-finished component of the production of gasoline. OPEC Organisation of Petroleum Exporting Countries. OPEC is located in Vienna, Austria and consists of 11 oil producing countries. www.opec.org Parcel tanker A company/shipowner that focuses on transport of small parcels of chemicals. Parcel tanker operator A shipping company that focuses on transporting chemicals in small lots. Product tanker A ship transporting refined oil products. PSSA Particularly Sensitive Sea Area – IMO classification entailing especially stringent environmental and safety rules for shipping in designated sea areas. Residual oil Fuel oil from the lower part of the distillation column with a high heating value. Used as fuel in large plants for production of electricity and heat and for bunker fuel onboard vessels. Ship clearance Carrying out various formalities, services and payment of port fees, excise duties etc., in connection with a vessel arriving or leaving a port. Clearing agents employed by the shipping company’s agents at the port carry out the clearance. Spot market Freight market where vessels are hired for single trips.

Deadweight tonne (dwt) The weight of the cargo, bunker and loose equipment that the vessel can hold.

SQAS Security and Quality Assessment System – a quality assurance system for transports developed by the chemical industry.

DNV The leading international classification society, located in Norway. www.dnv.com

Time charter The shipowner charters out its vessel complete and crewed against payment of a certain sum per day or a certain sum per deadweight tonne and month. The charterer of the vessel pays for bunker and port fees.

IEA International Energy Agency. www.iea.org IMO International Maritime Organisation. The UN body for maritime issues located in London. www.imo.org IMO class Classification of product and chemical tankers for which type of cargo the vessel may transport. A vessel with IMO classification 1 meets the highest standards, which means that the vessel can transport the most advanced chemical products. ISPS International Ship and Port facility Security – a code issued by the IMO for port and vessel security against external threats in the form of terrorist attacks, hijacking and sea piracy. Hull insurance A shipowner’s primary insurance covering the vessel.

TMSA Tanker Management and Self Assessment – guidelines for self inspection of a vessel’s own management system, developed by the oil companies’ forum for sea transports. Tonnage tax (tonnage-based tax) A type of standard tax based on the vessel owner paying tax in relationship to the size of the fleet, instead of on the annual profit. Transport alcohols Alcohol variants, such as ethanol, that are used as fuel in vehicles. Vetting control Oil companies’ examination of standard equipment, procedures and organisation of their suppliers of marine transport services.

LIBOR London Inter Bank Offered Rate, for interest rate levels. MTBE Methyl Tertiary Butyl Ether – additive in gasoline to improve combustion and reduce air pollution.

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.

Design: Takete and colleen, Text: Sund Kommunikation, English translation: Joe Brennan, Photos: Magnus Eklöf and Peter Bartholdsson. Printing and repro: Göteborgstryckeriet. (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.)

Broström Annual Report 2007

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