Broström is one of the leading logistics companies for the oil and chemical industry, focusing on industrial product and chemical tanker shipping and marine services. Broström is based worldwide, with head offices in Göteborg, Sweden.
Press Release PRELIMINARY REPORT 2007 Broström AB (publ) – Reg. no. 556005-1467
•
Extremely weak spot market during fourth quarter -
•
Profit after net financial items for the year was SEK 450 m (580). This includes capital gains on sales of vessels and operations and dissolution of negative goodwill, together totalling SEK 131 m (126). -
•
Cash flow per share was SEK 11.55 (13.05). Disposable liquidity amounted to SEK 993 m (1,110 on 31 December 2006). The dividend payout 2007 was SEK 258 m.
Changes in the fleet -
•
External valuations show a value that exceeds the book value in the range of SEK 2.7 billion.
Cash flow and disposable liquidity January - December -
•
The dividend corresponds to a dividend yield of 6.0% based on the closing share price 2007.
Surplus value of fleet, newbuilding contracts and call options on vessels amount to a substantial sum -
•
Net sales totalled SEK 844 m (802). Profit after tax totalled SEK - 5 m (38). Earnings per share were SEK - 0.05 (0.51).
Proposed dividend of SEK 3.00 per share (SEK 4.00) -
•
Net sales were SEK 3,504 m (3,386, of which 96 pertained to sold subsidiaries). Profit after tax was SEK 427 m (503). Earnings per share were SEK 6.50 (7.57). Return on capital employed was 9.8% (11.3%).
Profit after net financial items for Q4 was SEK - 10 m (42). This includes capital gains on sales of vessels and operations and dissolution of negative goodwill, together totalling SEK 11 m (13). -
•
European and Atlantic traffic were adversely affected by an extremely weak spot market, particularly during the first part of the quarter, due to lower available volumes in the market. Asian traffic was also characterised by a very weak spot market, especially during October and November. For the small size segment, capacity utilisation under contracts remained high and contributed to stable development during the quarter.
At year-end the fleet consisted of 86 vessels and 16 newbuildings. The GAN-SWORD (17,000 dwt) and the GAN-SPIRIT (47,000 dwt), owned by Broström’s partner Dünya, joined the fleet during the fourth quarter. A call option on the HUNTESTERN (37,000 dwt) was declared. The vessel is wholly owned by Broström as from December 2007.
Outlook The start of 2008 has been characterised by a volatile spot market, and the view is that it will continue to be highly volatile from time to time. As a result of investments and acquisitions carried out during the years, Broström has further strengthened its position going into 2008 and forward. The underlying long-term trend for Broström’s market segment is predicted to be positive, even though major fluctuations may occur from time to time.
1
12 months SEK m
Fourth quarter
2007
2006
2007
2006
3,504.0
3,386.1
843.7
802.4
Operating profit (EBIT)
663.6
771.7
45.8
94.7
Profit after net financial items
450.4
579.8
- 9.5
42.2
Profit for the period
426.5
503.0
- 4.9
38.0
1,082.1
1,687.5
293.9
33.1
Cash flow from operating activities
745,9
853.7
44,8
242.8
Disposable liquidity
993,4
1,109.7
9.8
11.3
30.9
35.0
Net sales
Investments
Return on capital employed, % Equity/assets ratio II, % Profit before tax per share, SEK *
6.97
8.87
- 0.12
0.63
Net profit per share, SEK *
6.50
7.57
- 0.05
0.51
Net profit per share after dilution, SEK * Cash flow from operating activities per share, SEK * Proposed dividend by the Board per share, SEK
6.50
7.57
- 0.05
0.51
11.55
13.05
0.73
3.69
3.00 65,797,184
4.00 65,395,814
65,797,184
65,797,184
Average number of shares *
* The number of shares has been recalculated for the 2:1 split
ACTIVITIES
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 winter 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.
Market overview The mild winter and well-filled stocks of refined oil products contributed to a weaker freight market at the start 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 third quarter was characterised by a steady weakening of the spot market. Apart from the usual seasonal decline in the late summer, there were maintenance shutdowns at a large number of refineries. In addition, the freight market was affected by a drop in trading activity due to credit concerns and uncertainty about movements in oil prices during the period.
The build-up of stocks in the US that is 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 from Europe to North America during the second quarter.
The market decline that began during the third quarter continued into the fourth quarter, when an extremely weak spot market was noted in essentially all markets. This was followed by a robust improvement during the latter part of October and November and the year closed with a relatively strong spot market.
For small and intermediate tonnage in Europe, the first and second quarters were more stable. Storms and port strikes caused delays during the start of the year. However, in pace with falling temperatures and the formation of ice in the Baltic, demand for tonnage increased during February and March, which contributed to a market improvement.
The outlook for the global demand of oil products in the world is continuously good. Ship2
full year 2007, the number of days for docking/upgrading was 678, compared with 318 days in 2006.
ments 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.
Broström's European 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.
The increasing regional imbalances in supply and demand of various oil products mean that small disruptions in the production and distribution chain have a rapid impact on the freight market and the spot market prices can fluctuate sharply.
The trend for Broström’s Atlantic traffic was also stable during the year as a whole, but here, too, earnings during the second half were hurt by the decline in the spot market and by the vessel dockings and extensive upgrades.
In addition, increasingly stricter standards regarding the environmental impact of various fuels are creating temporary or more enduring imbalances until the nearby refinery industry has adapted to the standards.
Broström’s Asian traffic, which is undergoing strong expansion, was increased 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.
The shipyards’ orderbooks remain very wellfilled, 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, single-hulled 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. IMO’s requirements of doublehulled vessels will fully apply in 2010.
Altogether this means that at year-end 2007, Broström operated a fleet of 22 vessels in Asia, compared with nine at year-end 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 has mainly affected Asian traffic negatively in the large size segment. The small tonnage segment has not been affected to the same extent by the decline in the spot market due to the terms of contracts and the high level of business conducted under contracts of affreightment.
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. Contract negotiations carried out during the year had a favourable outcome in terms of both price and volume. During the year, the freight market in Broström’s segment was 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 quarter – both had an adverse impact on earnings. The US dollar lost an average of 9% in value against the Swedish krona during the year.
Broström’s strategic focus on contracts of affreightment, where such business volume accounts for approximately 50% of total capacity over time, has 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.
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. For the
A central part of Broström’s growth strategy is to be active and a driving force in consolidation in Broström’s market segment. The acquisition
3
fleet of nine small and intermediate-size product tankers in Southeast Asia ranging from 5,000 to 16,600 dwt. Petroships' name has now been changed to Broström Tankers Singapore.
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. This may take place through company acquisitions and additional partnerships.
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 shipyards 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.
Activity has 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.
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 means that the option price that Broström paid for the vessel was slightly more than 20% lower than the vessel’s current market value.
Changes in the fleet The GAN-VOYAGER, the GAN-VALOUR, the GAN-VICTORY (all 47,000 dwt) and the GANSPIRIT (51,000 dwt) were delivered during the year and are operating in Broström’s Asian traffic. These vessels are owned by Broström’s partner Dünya.
Substantial surplus value of fleet
In February the BRO TRANSPORTER (14,400 dwt, built 1989) and the BRO TRADER (14,320 dwt, built 1988) were sold. The sales generated a capital gain of SEK 2.0 m and a liquidity contribution of SEK 86.6 m. Delivery took place at the end of the first quarter.
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 the owned vessels in the fleet as well as newbuilding contracts and existing call options on vessels that Broström has. These valuations were ordered from two external brokers, 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.
The BRO DEVELOPER (14,750 dwt) was delivered to Broström in February 2007 from the shipyard in China. Also in February, Broström entered into a longterm 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.
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 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 Sweden a study on the 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.
In May Broström also reached an agreement to acquire Petroships Group, a group of companies in Singapore and Malaysia that operates a
4
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.
share in associated companies’ profit was SEK 11.9 m (15.0). Operating profit was SEK 663.6 m (771.7). The figures for the period 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 in the amount 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.
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.
The return on capital employed was 9.8% (11.3%).
SIGNIFICANT RISKS AND UNCERTAINTY FACTORS
Tax expenses during the period 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).
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, and risks related to employees.
Net sales and Profit/Loss SEK m
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.
5000 4000 3000 2000 1000 0
1000 800 600 400 200 0 2003 2004 2005 2006 2007 Net sales
In Broström’s opinion, nothing of material significance has happened which affects the assessment of risks and uncertainty factors reported on in the 2006 Annual Report. For further information, please refer to the “Risk factors and sensitivity analysis” section of the 2006 Annual Report (page 44) and the “Financial risk management” discussion on page 62.
EBIT Profit after financial items
Quarterly earnings after net financial items SEK m
400
0
200
Consolidated net sales during January - December amounted to SEK 3,504.0 m (3,386.1, of which 95.5 pertains to sold subsidiaries).The
5
-0 7
-0 7
4
0
Q
3 Q
2
-0 7
Quarterly earnings
January - December 2007
Q
-0 6 4
1 Q
-0 6 Q
3
4 Q
Q
Operating profit for the Group was SEK 45.8 m (94.7).
1
-0 5
-0 6
-100
-0 7
600
100
-0 6
800
200
Q
Consolidated net sales during the fourth quarter amounted to SEK 843.7 m (802.4).
1000
300
2
Fourth quarter 2007
400
Q
GROUP FINANCIAL RESULTS
Moving 12 months
high demand for shipments of oil and chemical products.
Return on capital employed SEK m % 20
10 000
15
8 000
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.
6 000
10
4 000
5
2 000
0
0
2003 2004 2005 2006 2007
A new functional organisation has been introduced in Broström, with effect from 1 January 2008. 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.
Capital employed - average Return on capital employed
MAJOR DEVELOPMENTS AFTER YEAR-END In January 2008 the vessel GAN-SABRE (51,000 dwt) was delivered to her owner Dünya Shipping. The vessel has joined Broström’s commercial fleet of 14 Medium Range (MR) tankers for transportation of petroleum products in Asia.
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. For further information on the functional organisation, visit www.brostrom.com.
In February 2008 the BRO ANNA (17,000 dwt) was delivered to Broström. The vessel is the third in a series of six being built in Turkey in partnership with Dünya Shipping. In addition to the BRO ANNA, Broström will take delivery of further two vessels for delivery later in 2008.
The shipyards’ orderbooks are at historically high levels in Broström’s vessel segments, and a large number of vessels will be delivered in the years immediately ahead. However, Broström continues to hold to the view that this addition of tonnage will be offset to a large degree by the major need for replacement tonnage and the rising demand caused by structural changes in the market.
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 value of the US dollar relative to the Swedish krona is an uncertainty factor to note. All else equal, a weakening of the US dollar would have a negative impact on Broström’s sales, earnings and shareholders’ equity, while a strengthening would have a positive effect.
The underlying long-term trend for Broström’s market segments is predicted to be positive, even though major fluctuations may take place from time to time.
INVESTMENTS AND DIVESTMENTS
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 evergreater 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
Total investments within the Group during the period 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.
6
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 tangible fixed assets 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, of which SEK 11 m has been recorded in the fourth quarter, which is reported under other income.
Acquired and newly delivered vessels in 2007 Name
Built
Dwt
OwnerShip *
Partner
PETRO IMTRES
1998
5,000
100%
PETRO EASKEM
1998
5,000
100%
PETRO OPTI
1995
7,500
44%
Financial investors
PETRO VENTURE
1995
7,500
44%
Financial investors
BRO CONCORD
1995
12,200
100%
PETRO RANGER
1993
12,400
C/M
Financial investors
PETRO FOREMOST
1999
12,600
44%
Financial 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
51,000
C/M
Dünya
Newbuildings on order on 31 December 2007 Name
Delivery
Dwt
Ownership
BRO ANNA
2008
17,000
100%
BRO AGNES
2008
17,000
100%
BRO ALMA
2008
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
C/M = Commercial Management
Investments in vessels already included in the fleeet Name
Built
Dwt
Ownership
Partner
BRO GOTHIA (ex MARISP)
2003
7 100
50 %
Thun
BRO GOLIATH (ex MARELD)
2004
7 100
50 %
Thun
BRO ERIN (ex HUNTESTERN)
2004
37 000
100 %
Partner
Vessels leaving the fleet in 2007
For further information on investments and sales of vessels in 2007, see the section “Changes in the fleet” on page 4.
Name
Built
Dwt
Ownership
BRO TRADER
1988 14,320
100%
BRO TRANSPORTER
1989 14,400
77,5%
VINGA HELENA
1985
PETRO RANGER
In May 2007 Broström 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 in Southeast Asia ranging from 5,000 to 16,600 dwt. Five of the vessels are wholly owned and three are partly owned. The one vessel that was operated under commercial management was sold during 2007 by her owners. Petroships Group is included in Broström’s income statement as from 1 May 2007.
6,200
1993 12,400
Partner
Financial investors
C/M
Swedia
C/M
Financial investors
On 2 July 2007 Broström sold its 50% stake in the ship agency Percy Tham i Oxelösund AB. The sale generated a pre-tax gain of SEK 1.5 m. On 10 August 2007, Broström signed an agreement to sell its 2.8% stake in Norrköpings Hamn & Stuveri AB. The sale generated a pretax gain of SEK 10.9 m, which was booked as income in the third quarter of 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
Broström’s updated fleet list can be found at www.brostrom.com.
7
CASH FLOW
Equity/assets ratio II
Cash flow from operating activities amounted to SEK 745.9 m (853.7), or SEK 11.55 (13.05) per share.
% 40
SEK m 10 000
36 8 000
32
In 2007 a shareholder dividend of SEK 258.3 m (261.0), or SEK 4.00 (4.00) per share was paid.
28
6 000
24 4 000
20 2003
FINANCIAL POSITION AND LIQUIDITY
2004
2005
Balance sheet total
The Group’s disposable liquidity on the balance sheet date amounted to SEK 993.4 m (1,109.7 on 31 December 2006). This amount includes unutilised overdraft facilities totalling SEK 52.6 m (52.2).
2006
2007
Equity assets ratio II
PLEDGED ASSETS AND CONTINGENT LIABILITIES Pledged assets have increased since the start of the year by SEK 33.9 m and amounted to SEK 5,816.1 m (5,782.2 on 31 December 2006). Contingent liabilities have decreased by SEK 17.0 m since the start of the year and amounted to SEK 66.1 m (83.1 on 31 December 2006).
A dividend of SEK 258.3 m was paid to the shareholders in May. 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.
WARRANT PROGRAMMES
Shareholders’ equity on the balance sheet date amounted to SEK 2,499.1 m (2,606.4 on 31 December 2006), and the equity/assets ratio I was 29.4% (32.8%). The equity/assets ratio II was 30.9% (35.0%), which is above Broström’s target of 30%.
As per 31 December 2007 Broström has two share warrant programmes in effect that were introduced in 2005 and 2007. The programmes were offered to all permanent employees of the Group as well as to employees of partly owned companies in which Broström’s ownership is 50% or more.
As per 31 December 2007, Broström had repurchased 2,021,000 Class B shares at an average price of SEK 66.90.
The number of warrants in the warrant programmes has been recalculated in accordance with the rules that apply for a stock split. On 4 June 2007 Broström carried out a 2:1 split, which is why the number of warrants has doubled compared with the previously reported number of shares, and the price per share has been halved.
At Broström’s Annual General Meeting on 3 May 2007, the Board’s proposed amendment to the Articles of Association, which would allow a stock split, was approved. 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.
The warrant programme from 2005 consists of two warrant series with exercise dates in September 2007 and September 2008, 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 3.13 in series 2005:1 and SEK 4.25 in series 2005:2. Each warrant entitles its bearer to subscribe for one share at the exercise price of SEK 78.60. The warrants that were not granted in 2005 were offered to future new employees. One such offer was made in autumn 2006. The price was SEK 5.35 for each warrant in series 2005:1 and SEK 8.40 exercise for each warrant in series 2005:2. At the date in September 2007
It should be noted that in connection with the adoption of IFRS, the company has decided not to restate the book value of its vessels to market values. During the first quarter, Broström 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. Broström’s financial position is strong and enables continued participation in possible structural changes in the industry.
8
Broström's share price was below the exercise price of SEK 78.60, and thus the warrants in series 2005:1 expired without value. As per 31 December 2007, 397,800 warrants had been subscribed and 1,200,000 had been cancelled. A total of 2,200 warrants were unsubscribed.
Full year SEK m
Fourth quarter
2007
2006
2007
2006
35.4
31.9
9.1
7.7
Income statements Net sales
Subscribed warrants in the warrant programme entail an increase in the total number of shares and votes by 0.6% and 0.4%, respectively.
Operating profit/loss (EBIT)
-39.7
-18.7
-12.9
-11.8
Net financial items
133.6
253.0
116.9
192.2
93.9
234.3
103.9
180.4
-
3.4
-
3.4
Profit before tax
93.9
237.7
103.9
183.8
Tax
17.8
12.8
5.5
1.6
Profit for the period
111.7
250.5
109.4
185.4
* Of which, dividends from subsidiaries and associated companies
160.2
268.3
126.4
194.6
Non-current assets
1,934.1
1,981.2
-
-
Current assets
1,843.3
2,027.3
-
-
Total assets
3,777.4
4,008.5
-
-
Shareholders’ equity
1,565.9
1,776.5
-
-
Profit after net financial items * Appropriations
There was no dilutive effect in terms of value on the balance sheet date. The warrant programme from 2007 consists of two warrant series with exercise dates 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. 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 unsubscribed.
Balance sheets
Untaxed reserves
-
-
-
-
503.1
993.9
-
-
Current liabilities
1,708.4
1,238.1
-
-
Total liabilities and shareholders’ equity
3,777.4
4,008.5
-
-
Non-current liabilities
Subscribed warrants in the warrant programme entail a 1.0% increase in the number of shares and 0.7% increase in the number of votes. There was no dilutive effect in terms of value on the balance sheet date.
STAFF Through the acquisition of Petroships Group in May 2007, the number of Broström employees increased by 399, of whom 47 are in the shore-based operations and 352 are onboard employees. In total, the Broström Group has approximately 1,400 employees (excluding associated companies).
Investments
327.6
2.0
0.2
0.8
Divestments
0.1
16.9
-
-
Disposable liquidity
771.9
1,013.1
-
-
Of which, unutilised overdraft facilities
52.6
52.2
-
-
ACCOUNTING PRINCIPLES This preliminary report has been prepared in accordance with the Swedish Annual Accounts Act and IAS 34 Interim Financial Reporting. Since 1 January 2005 the Broström Group has applied International Financial Reporting Standards (IFRS) as adopted by the EU, along with the additional rules stipulated by recommendation RR 31 of the Swedish Financial Accounting Standards Council. The Group has applied the same accounting principles and calculation methods in the preliminary report as in its most recent annual report.
PARENT COMPANY The activities of the parent company, Broström AB, consist mainly of Group management and administration of joint activities for the Group. The assets consist mainly of shares in subsidiaries and liquid investments.
The Group has also analysed the IFRSs and interpretations which went into effect in 2007. Only IFRS 7 Financial Instruments: Disclosures, is judged to affect the Group. This new standard pertains to the scope and content of
9
entails a total dividend payout of SEK 190.6 m (258.3).
the presentation of financial instruments and risks in the annual accounts and is not expected, upon adoption, to result in any material impact on the Group’s earnings or financial position.
The Board has proposed 5 May 2008 as the record date.
As from 2007 Broström provides no breakdown by segments, since the companies that essentially made up the Marine & Logistics Services segment were sold in 2005 and 2006. A breakdown by segment is therefore no longer relevant.
ANNUAL GENERAL MEETING AND ANNUAL REPORT The Annual General Meeting of Broström AB (publ) will be held at 5 p.m. on Tuesday, 29 April 2008, at Lorensbergsteatern, Göteborg.
At Broström’s Annual General Meeting on 3 May 2007, the Board’s proposed amendment to the Articles of Association, which would allow a stock split, was approved. 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.
Broström does not have a nominating committee, since an agreement exists between the company’s A-shareholders. One of the aims of this agreement is to establish consensus on nomination matters, which are drafted by the A-shareholders, who jointly submit their recommendations to the AGM for a decision. This procedure was established by an earlier AGM. The nomination work also includes drawing up recommendations for an AGM chairman, the chairman of the Board of Directors, directors’ fees and, where applicable, election of auditors and auditors’ fees. The A-shareholders strive for the greatest possible openness in the nomination process and welcome proposals and views from other shareholders. Shareholders who wish to nominate a director to the board, or who for other reason want to contact a representative of the A-shareholders, can contact the Chairman of the Board.
SHARES AND SHAREHOLDERS Broström’s shares are quoted on the OMX Nordic Exchange, Mid-Cap List, Energy Sector. In 2007 51.2 million shares (77.8) were traded for a total amount of SEK 4,253 m (5,934). Broström had 17,428 (18,969) shareholders on 31 December 2007, a decrease of 8% compared with a year ago.
Printed versions of the Annual Report will be available to shareholders in April 2008. In addition to being available to the public via the Swedish Companies Registration Office (Bolagsverket), the Annual Report will also be published on Broström’s website: www.brostrom.com.
PROPOSED DIVIDEND The Board of Directors has proposed to the Annual General Meeting an ordinary dividend of SEK 3.00 per share (4.00). The proposal
10
FUTURE REPORTS Broström will release a financial report on the following dates in 2008. 29 April 2008
Interim report three months 2008 and Annual General Meeting
27 August 2008
Interim report six months 2008
6 November 2008
Interim report nine months 2008
Göteborg, 21 February 2008 BROSTRÖM AB (publ) On behalf of the Board
Lennart Simonsson Managing Director Broström AB 403 30 Göteborg Sweden Tel +46 31 61 61 00 Reg. no. 556005-1467
More information about Broström and press releases can be found at www.brostrom.com.
11
INCOME STATEMENTS 12 months 2007
Group SEK m Net sales Capitalised work for own account Other income
1)
Share in associated companies’ profit External expenses
2006
Fourth quarter 2007 2006
3,504.0
3,386.1
843.7
802,4
0.5
10.5
-
1.0
142.5
122.8
11.6
4.0
11.9
15.0
7.2
- 3.0
- 2,075.2
- 1,908.0
- 588.6
- 485.9
Personnel costs
- 546.7
- 514.2
- 133.5
- 136.2
Depreciation and write-downs
- 373.4
- 340.5
- 94.6
- 87.6
663.6
771.7
45.8
94.7
63.8
60.9
13.7
14.7
Operating profit (EBIT) Financial items Interest income Exchange rate differences on assets
- 19.2
- 44.1
- 3.7
- 16.8
- 273.9
- 246.9
- 67.8
- 66.0
16.1
38.2
2.4
15.6
- 213.2
- 191.9
- 55.3
- 52.5
Profit after net financial items
450.4
579.8
- 9.5
42.2
Tax on profit for the period
- 23.9
- 76.8
4.6
- 4.2
Profit for the period
426.5
503.0
- 4.9
38.0
419.8
495.1
- 4.7
34.1
6.7
7.9
- 0.2
3.9
6.50
7.57
- 0.05
0.51
6.50
7.57
- 0.05
0.51
Interest expenses Exchange rate differences on liabilities Net financial items
The profit for the period attributable to Equity holders of the parent Minority interest Earnings per share, SEK
2)
Earnings per share after dilution, SEK
2)
Average exchange rate SEK/USD
6.76
7.38
6.42
7.08
Average exchange rate SEK/EUR
9.25
9.25
9.30
9.13
1)
2)
Of which dissolution of negative goodwill The remaining part is mainly related to sales of vessels and operations.
117.2
The number of shares has been recalculated for the 2:1 split
12
11.2
BALANCE SHEETS Group, SEK m
31 December 2007
31 December 2006
119.8
124.0
ASSETS Non-current assets Goodwill Other intangible assets Tangible assets Financial assets, interest-bearing Financial assets, non-interest-bearing Total non-current assets Current assets Inventories Current receivables Short-term investments Cash and cash equivalents Total current assets Total assets SHAREHOLDERS’ EQUITY AND LIABILITIES Shareholders’ equity 1) Non-current liabilities Equalisation reserve Deferred tax Other non-current liabilities, non-interest-bearing Non-current liabilities, interest-bearing 2) Total non-current liabilities
2.2
2.5
6,463.7
5,907.4
23.1
28.4
81.9
49.1
6,690.7
6,111.4
113.6
63.6
516.7
492.4
233.6
226.0
940.8
1,057.4
1,804.7
1,839.4
8,495.4
7,950.8
2,499.1
2,606.4
114.1
149.7
478.4
481.0
30.4
29.1
4,167.3
3,969.6
4,790.2
4,629.4
647.2
328.8
Current liabilities Current liabilities, interest-bearing 2) Current liabilities, non-interest-bearing Total current liabilities
558.9
386.2
1,206.1
715.0
Total liabilities and shareholders’ equity
8,495.4
7,950.8
Pledged assets Contingent liabilities
5,816.1
5,782.2
66.1
83.1
6.47
6.87
9.47
9.05
Closing day exchange rate SEK/USD Closing day exchange rate SEK/EUR 1)
Of which, minority interest
31.7
32.7
2)
Of which, financial leasing
425.1
633.0
2007 2,606.4 - 132.9 426.5 - 135.4 - 261.7 - 5.7 1.9 2,499.1
2006 2,709.5 - 349.0 - 4.5 503.0 - 269.1 16.5 2,606.4
CHANGES IN SHAREHOLDERS’ EQUITY Group, SEK m According to balance sheet, most recent year-end closing Exchange rate difference Derivative instruments, cash flow hedges after tax Profit for the year Share repurchases Dividend to shareholders and minority holders Change in minority share New issue, warrant premiums Amount at the end of year
The exchange rate difference for the period is mainly due to changes in the USD relative to the Swedish krona. USD is the functional currency for the main subsidiaries in the Group.
13
CASH FLOW STATEMENTS Group, SEK m
2007
2006
OPERATING ACTIVITIES Operating profit
663.6
771.7
Adjustments for items not included in cash flow, etc.
131.7
94.3
- 169.6
- 106.2
- 3.0
- 4.4
Financial items Paid tax Change in working capital
123.2
98.3
Cash flow from operating activities
745.9
853.7
- 882.8
- 1,983.3
104.5
373.8
- 347.3
- 0.1
INVESTING ACTIVITIES Investments in non-current assets Sales of non-current assets Investment in subsidiaries/associated companies Sales of subsidiaries/associated companies
3.0
15.2
Change in other financial assets
1.5
- 0.4
- 1,121.1
- 1,594.8
- 258.3
- 261.0
- 3.4
- 8.1
-135.3
-
Cash flow from investing activities
FINANCING ACTIVITIES Dividend to shareholders Dividend to minority holders Share repurchases New share issue, warrant premiums
1.9
16.5
New loans
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
Cash and cash equivalents and short-term investments 1,283.4
1,480.5
Cash flow for the year
Opening balance
- 66.3
- 48.4
Exchange rate differences Cash and cash equivalents and short-term investments, closing balance
- 42.7
- 148.7
1,174.4
1,283.4
QUARTERLY SALES AND EARNINGS TRENDS Group, SEK m Net sales Operating profit Profit after financial items Moving 12 months, profit after financial items
Q4 843.7
2007 Q3
2006 Q3 Q2
Q1
2005 Q4
769,3
964,6
1,127.5
213.3
112.7
351.0
310.0
42.2
162.6
64.9
310.1
280.4
579.8
818.0
748.0
868.6
720.1
Q2
Q1
Q4
819.2
915.1
926.1
802,4
849,8
45.8
97.8
301.9
218.1
94.7
- 9.5
40.7
246.8
172.5
450.4
502.0
623.9
442.0
14
FIVE-YEAR SUMMARY Group, SEK m
2007
2006
2005
2004
2003
3,504.0
3,386.1
3,818.1
3,206.8
3,267.3
663.6
771.7
812.4
403.8
355.1
INCOME STATEMENTS Net sales Operating profit (EBIT) Net financial items
- 213.2
- 191.9
- 92.3
- 79.1
- 117.0
Profit after financial items
450.4
579.8
720.1
324.7
238.1
Tax on profit for the year
- 23.9
- 76.8
- 97.2
162.0
- 47.9
Consolidated profit for the year
426.5
503.0
622.9
486.7
190.2
6.7
7.9
11.8
8.5
11.4
6,690.7
6,111.4
5,787.2
4,061.5
3,984.5
630.3
556.0
646.9
524.4
717.7
Of which, minority interest
BALANCE SHEETS Non-current assets Current assets excl. cash and cash equivalents Cash and cash equivalents and short-term investments Total assets
1,174.4
1,283.4
1,480.5
954.9
944.6
8,495.4
7,950.8
7,914.6
5,540.8
5,646.8
Shareholders’ equity incl. minority interests
2,499.1
2,606.4
2,709.5
1,799.5
1,501.5
14.8
29.5
30.7
160.3
230.6
Equalisation reserve
114.1
149.7
205.3
107.3
105.9
Deferred tax
478.4
481.0
473.1
344.5
561.5
Non-current liabilities and provisions
4,182.9
3,969.2
3,800.9
2,363.2
2,465.9
Current liabilities
1,206.1
715.0
695.1
766.0
781.4
Total shareholders’ equity and liabilities
8,495.4
7,950.8
7,914.6
5,540.8
5,646.8
622.7
755.4
776.5
334.5
420.6
Debenture loan
CASH FLOW STATEMENTS Operating activities Changes in working capital
123.2
98.3
- 157.2
95.1
- 76.7
Cash flow from operating activities
745.9
853.7
619.3
429.6
343.9
- 1,121.1
- 1,594.8
- 491.3
- 441.7
0.7
570.6
961.8
457.2
92.1
- 239.9
- 261.7
- 269.1
- 172.8
- 131.6
- 87.1
Investing activities Financing activities Dividend to shareholders and minority holders Translation difference Cash flow for the period Cash and cash equivalents, opening balance Changed consolidation Exchange rate difference in cash and cash equivalents Cash and cash equivalents, closing balance
-
-
-
-
1.1
- 66.3
- 48.4
412.4
- 51.6
18.7
1,283.4
1,480.5
954.9
944.5
971.8
-
-
-
25.7
21.7
- 42.7
- 148.7
113.2
36.3
- 67.7
1,174.4
1,283.4
1,480.5
954.9
944.5
Capital employed, weighted average
7,219
6,986
5,484
4,338
4,489
Capital employed, at year-end
7,314
6,904
6,825
4,637
4,438
Operating capital
6,260
5,772
5,521
3,760
3,563
Net debt
3,640
3,015
2,608
1,657
1,745
Average number of employees
1,206
1,034
1,009
992
1,042
OTHER
Comparison figures 2003 have not been recalculated according to IFRS
15
KEY RATIOS 2007
2006
2005
2004
2003
EBITDA-margin, %
29.6
32.8
28.0
19.8
18.3
EBIT-margin (operating margin), %
18.9
22.8
21.3
12.6
10.9
Profit margin, %
12.9
17.1
18.9
10.1
7.3
Return on capital employed, %
9.8
11.3
15.9
9.9
7.5
Return on shareholders’ equity, %
16.3
18.6
27.1
30.0
12.4
MARGINS
RETURN RATIOS
Return on total capital, %
8.5
9.7
13.6
8.0
5.9
11.0
13.4
18.5
11.7
9.8
Debt/equity ratio, multiple
1.5
1.2
1.0
0.9
1.2
Interest cover ratio, multiple
2.7
3.8
5.7
4.2
3.4
Equity/assets ratio I, %
29.4
32.8
34.2
32.5
26.6
Equity/assets ratio II, %
30.9
35.0
37.2
38.0
31.9
Share of risk-bearing capital, %
36.6
41.1
43.2
44.2
42.5
1,004
1,243
1,322
912
823
7.9
10.2
9.7
8.9
8.9
Return on operating capital, % CAPITAL STRUCTURE
EMPLOYEES Value added per employee, SEK 000 APPROPRIATION OF PROFITS Dividend in relation to shareholders’ equity, %
For definitions please see 2006 Annual Report.
16
SHARE DATA Price-related share data
2007
2006
2005
2004
2003
Share price at year-end (closing price), SEK
49.80
75.00
80.00
49.37
36.00
Highest price paid during the year, SEK
79.50
89.50
81.75
51.75
36.75
Lowest price paid during the year, SEK
43.20
62.50
45.13
34.00
17.35
Market cap 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
11.7
P/EBIT
4.8
6.4
6.4
7.2
5.9
P/CE
4.3
5.7
8.4
8.4
6.1
Dividend yield, %
6.0
5.3
5.0
5.1
6.3
16.06
17.01
16.54
10.82
10.26
Profit after net financial items, SEK
6.97
8.87
11.13
5.54
4.09
Profit, SEK
6.50
7.57
9.45
8.17
3.07
Per-share data EBITDA, SEK
Profit after dilution, SEK
6.50
7.57
9.38
7.55
3.04
Shareholders’ equity, SEK
38.20
39.36
41.35
28.15
25.26
Shareholders’ equity after dilution, SEK
38.20
39.36
41.07
27.90
25.11
Cash flow from operating activities, SEK
11.55
13.05
9.58
7.33
5.91
Cash flow for the year, SEK
-1.03
- 0.74
6.38
- 0.33
0.32
3.00
4.00
4.00
2.50
2.25
Dividend (proposed), SEK Number of shares Number of shares at year-end
65,797,184
65,797,184
65,245,684
62,789,612
58,479,976
of which, number of treasury shares
2,021,000
-
-
-
-
Average number of shares outstanding
65,797,184
65,395,814
64,693,840
58,574,434
58,239,892
1,100,000
800,000
1,351,500
1,297,000
1,297,000
-
2,264
437,542
567,166
335,222
Number of shares after dilution at year-end
65,797,184
65,799,448
65,683,226
63,356,778
58,815,198
Average number of shares after dilution
65,797,184
65,398,078
65,131,382
59,141,600
58,575,114
of which, average number of treasury shares Number of outstanding warrants Number of dilution shares
1,212,158
SHAREHOLDERS Owner (direct holdings) 31 December 2007 Arvid Svensson Invest AB The Dreijer families Odin Fonder, Oslo The Björnram families Lennart Simonsson Kenneth Nilsson Broström AB Case Michael Hjortböl JP Morgan Other** Total
Number of A-shares 2,075,968 1,469,908 343,680 192,084 169,816
4,251,456
** Including non-Swedish nominee shareholders where individual holdings are not officially registered.
17
Number of B-shares 10,027,692 3,122,210 6,023,800 458,157 412,540 534,144 2,021,000 1,494,700 970,560 803,061 35,677,864 61,545,728
capital 18.4 7.0 9.2 1.2 0.9 1.1 3.1 2.3 1.5 1.2 54.1 100.0
Percentage of votes 29.6 17.1 5.8 3.7 2.2 2.1 1.9 1.4 0.9 0.8 34.5 100.0