Annual Report 2012 2 J

Annual Report 2012 www.j-lauritzen.com 2 J. Lauritzen A/S · Annual Report 2012

J. lauritzen at a glance

J.Lauritzen (JL) was founded in 1884 and is riers, gas carriers, product tankers and dynami- owned by the Lauritzen Foundation. We have cally positioned support vessels for the offshore grown and developed our operations consider- industry that are all engaged in operations world- ably during the last decade and thus remain one wide. of Denmark’s leading shipping companies. We continuously strive to have a client-oriented Part of our strategy is to spread risks across the approach to the way we do business and our op- different business areas. Today we have four busi- erations are conducted by highly skilled staff at ness units with different growth drivers and cycles sea and ashore. and each specifically positioned to their respec- tive markets. JL is headquartered in Copenhagen with overseas offices in China, Japan, Philippines, Singapore, We operate a modern, diversified fleet of bulk car- Spain and USA.

Disclaimer This Annual Report contains forward-looking statements about JL’s future financial position. Such statements are subject to risks and uncertainties as various factors, many of which are beyond the control of JL, may cause actual developments and actual results to differ materially from expectations contained in the Annual Report. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.

This report is available in Danish and English. In the event of any discrepancy between the two versions, the Danish version shall pre- vail.

Printed by: KLS grafisk hus A/S, Denmarks most green graphic house J. Lauritzen A/S · Annual Report 2012 3

Table of contents

BOARD & EXECUTIVE MANAGEMENT STAtement 4 company introduction 6 Group key figures 8 Highlights 2012 and outlook 2013 10 Lauritzen Bulkers 18 Lauritzen kosan 26 Lauritzen tankers 34 Lauritzen offshore 40 Finance and investor Relations 42 risk management 46 Corporate Governance 50 Corporate Responsibility 54 Organisation and People 56 Financial Review 58 Board of Directors 60 mANAGEMENT 62 Accounts 64 management statement 100 Independent Auditors’ Report 101 Overall Group Structure 102 List of Group CompanieS 103 4 J. Lauritzen A/S · Annual Report 2012

BOARD & EXECUTIVE MANAGEMENT STATEMENT

The business environment for the shipping indus- USD 160m into equity, thereby increasing JL’s sol- try has changed substantially during the past few vency ratio from 37% at year-end 2012 to 44%. years. Difficult trading conditions are expected to con- Characterised by oversupply in major shipping tinue in 2013 as a multitude of risk factors contin- markets, surplus shipbuilding capacity, low eco- ue to impact global shipping. Surplus capacity will nomic growth and tight credit conditions, 2012 influence most markets during the year. However, brought plummeting asset values, with the Baltic we expect global economic growth to gradually Freight Index at a 25 year low and further defaults strengthen. At the same time, high scrappings among shipping companies. and declining deliveries will reduce fleet growth and set the scene for the beginning of a modest JL was obviously influenced by these circum- recovery towards the end of the year. stances and with a net loss of USD (350)m our 2012 result was very unsatisfactory. More than anything else, JL stands for accountability. Our well-qualified staff will continue to de- In this challenging environment, we continued to liver the services which through our 128 years of develop our different business activities and we history have enabled us to build strong relations made a number of important decisions during the with customers, partners and other stakeholders year. Of special importance was the joint venture globally no matter which market conditions we with HitecVision, Norway, in the promising off- have been operating in. shore market, the formation of Axis OffshoreP te. Ltd. and the following order for a modern semi- After more than 14 years as President and CEO, submersible ASV (Accommodation and Support Torben Janholt will retire with the release of JL’s Vessel) for delivery in 2015. 2012 annual accounts. Jan Kastrup-Nielsen, who has been with JL since 2000 and a member of JL’s Lauritzen Bulkers increased its focus on long-term Executive Management since 2009, will become cargo contract business and related market activi- the new President and CEO. ties.

Capesize bulk carriers left without contract cover Bent Østergaard due to defaults were sold. Chairman of the Board

All business units were engaged in an energy savings programme launched in collaboration with Torben Janholt classification society DNV (Det Norske Veritas). President & CEO 1998-2013 Group finances were further strengthened with a new corporate bond issuance and the bonds were listed on Oslo Stock Exchange. Jan Kastrup-Nielsen President & CEO In connection with the approval of JL’s Annual Re- 2013- port for 2012, the Lauritzen Foundation decided to convert two subordinated loans equivalent to J. Lauritzen A/S · Annual Report 2012 5

From left: Torben Janholt, Bent Østergaard and Jan Kastrup-Nielsen 6 J. Lauritzen A/S · Annual Report 20122011

company introduction LAURITZEN BULKERS Dry bulk operations started in the late 1970s when the focus was on handysize bulk carriers/lakers (lakers are special ocean-going vessels capable of also serving the Great Lakes in North America). Today Lauritzen Bulkers is a major owner and operator of bulk carriers engaged in all dry bulk segments.

Operations comprise a combined fleet of more than 100 handysize, handymax, panamax and capesize bulk carriers including short-term charters.

LAURITZEN KOSAn With the acquisition of Kosan Tankers in 1989, JL entered the market for smaller gas carriers, and today Lauritzen Kosan is a leading carrier of liquefied gases, including petrochemical gasses such as ethylene and propylene.

At year-end 2012, Lauritzen Kosan controlled a combined fleet of 45 semi-refrigerated/ethylene and fully pressurised gas carriers in the 3,000- 10,000 m3 segment. J. Lauritzen A/S · Annual Report 2012 7

LAURITZEN Tankers Established in 2004 with the acquisition of Quan- tum Tankers, Lauritzen Tankers is a provider of medium range (MR) product tankers for ocean transport of oil products ranging from vegetable oils to petroleum products, fuel oils and chemi- cals.

Lauritzen Tankers controlled 18 modern, medium range product tankers at year-end 2012.

LAURITZEN Offshore

Operations started in 2008 with the conversion of a product tanker into a dynamically positioned shuttle tanker. The offshore operation today comprises three shuttle tankers and part-ownership in the offshore accommodation segment.

In 2012, Axis Offshore was established as a 50:50 joint venture with HitecVision to focus on high- end semi-submersible accommodation units also capable of serving clients in the North Sea. The joint venture builds on JL’s expertise in the offshore accommodation sector and our first accommodation unit Dan Swift was transferred to the new operation. 8 J. Lauritzen A/S · Annual Report 2012

Group key figures

USDm 2012 2011 2010 2009 2008

Revenue 696 604 719 483 666 Profit before depreciation (EBITDA) 89 146 252 135 159 Profit/(loss) on sale of vessels (95) (36) (12) 17 146 Operating income (EBIT) (264) 19 187 76 170 Share of profit/(loss) in joint ventures (26) 5 11 17 27 Financial items, net (59) (69) (56) (17) (38) Profit/(loss) before tax (349) (46) 141 76 159 Profit/(loss) for the year (348) (44) 136 80 155 Non-controlling interest's share of profit/(loss) (1) (2) (5) (5) (5) The J. Lauritzen Group's share of profit/(loss) (350) (46) 131 75 149

Non current assets 1,931 2,361 2,062 1,671 1,399 - including vessels under construction 39 232 663 445 659 Current assets 384 321 348 518 368 - hereof cash and securities 267 236 224 218 180 Total assets 2,315 2,682 2,411 2,188 1,768 Share capital 61 61 61 61 61 JL's share of equity 852 1,199 1,239 1,126 1,043 Non current liabilities 1,285 1,311 967 886 413 Current liabilities 178 170 200 172 307

Cash flow from operating activities 34 86 164 (24) 300 Cash flow from investment activities (108) (330) (325) (455) (237) - hereof investments in vessels, machinery and equipm. (190) (438) (538) (541) (714) Cash flow from financing activities 107 323 142 508 290 Changes for the year in cash and cash equivalents 33 79 (19) 29 353 Cash and cash equivalents 267 234 154 172 144

Average number of employees 1,379 1,300 1,148 940 662

DKK exchange rate year end 566 575 561 519 528 Average DKK exchange rate 580 536 563 536 510

Group key figures

Profit margin (37.9)% 3.1% 25.9% 15.7% 25.6% Solvency ratio 37% 45% 52% 52% 59% Solvency ratio (JL's share of equity) 37% 45% 51% 51% 59% Return on equity (34.1)% (3.8)% 11.1% 6.9% 14.7% Return on invested capital (13.5)% 1.1% 10.2% 6.1% 17.1%

The key figures have been calculated as follows:

Profit margin Operating income x 100 Revenue

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

Return on equity JL's share of profit/(loss) x 100 JL's average share of equity

Invested capital Total assets less cash, securities, non operational assets and non interest-bearing current liabilities

Return on invested capital (Operating income + share of profit/(loss) in joint ventures) x 100 Average invested capital J. Lauritzen A/S · Annual Report 2012 9

EBITDA 2011-2012 usdm SELECTED KEY FIGURES usdm

100 350 80 250 150 60 50 40 -50 20 -150 -250 0 2008 2009 2010 2011 2012 -350 (20) -450 Bulk Gas Tank Offshore Other EBITDA EBIT 2011 2012 Result for the year One-off items

Average no. of vessels REVENUES usdm

140 800 120 600 100 80 400

60 200 40 20 0 2008 2009 2010 2011 2012 0 Bulk Gas Tank Offshore Lauritzen Bulkers Lauritzen Kosan Lauritzen Offshore 2011 2012 Lauritzen Tankers Reefer a.o.

Invested capital at year-end USDm CAPITAL STRUCTURE usdm

1,400 3,000 1,200 2,500 1,000 2,000 800 600 1,500 400 1,000 200 500 0 (200) 0 Bulk Gas Tank Offshore Other 2008 2009 2010 2011 2012 2011 2012 Total equity Non-current liab. Current liab.

CASH FLOW FROM OPERATIONS and cash usdm

400

300

200

100

-100 2008 2009 2010 2011 2012 Cash flow from operating activities Cash and cash equivalents 10 J. Lauritzen A/S · Annual Report 2012

Highlights 2012 and outlook 2013

In a year characterised by sustained world eco- cies in China during the first half of 2012 and the nomic decline, generally depressed shipping mar- increased turmoil in financial markets mainly in kets and substantial deliveries of new tonnage to the Euro zone during the second quarter damp- major shipping segments, JL’s result was USD ened economic growth and limited world trade. (349.7)m compared to USD (46.2)m in 2011, cf. Tightening sanctions against Iran was another Figure 1. factor that hampered trade in petrochemical gases for example. The result for 2012 was significantly impacted by one-off items with a net effect of USD (254.4)m The following characterized JL’s main markets in (2011: USD (25.2)m) comprising write-downs, 2012: sale of claims and sales of vessels due to counterparty defaults or strategic initiatives. Adjusted for • The dry bulk market posted yet another year one-off items, JL’s result was USD (95.4)m, down of unsatisfactory developments in rates and from USD (21.0)m in 2011 mainly due to income prices with the average Baltic Freight Index lost as a consequence of counterparty defaults (BFI) declining by 40% compared to 2011 and to the weaker bulk markets. reaching at its lowest for 25 years. Spot rates were down by 30% on average for Return on invested capital was (13.5)% compared handysize and handymax and 50% for cape- to 1.1% in 2011. size compared to 2011. Period rates fell by 20% for capesize and 30% or more for all The result was in line with expectations stated in other segments. our stock exchange announcement to Oslo Børs After a dismal opening of the year, an im- in December 2012 but considerably below our ex- provement set in for handysize and handy- pectations at the beginning of the year. The result max in February which ended in August. The is regarded as very unsatisfactory. normal strengthening for handysize and handymax after the harvest season did not The business environment occur. Capesize spot earnings were at very 2012 was a very difficult year for practically all low levels save for a couple of months to- shipping markets apart from offshore.T he Clark- wards the end of the year. Sea Index, representing a weighted average of Second-hand prices declined by 20-30% de- earnings in the bulk, gas, container and product pending on vessel segment. tanker markets declined by 23% in 2012 com- • Period rates for smaller gas carriers declined pared to 2011, cf. Figure 2, and was - adjusted for slightly to about USD 540,000 per month for rises in operational costs - at its lowest since ethylene carriers and USD 265,000 per 1990. Some markets such as gas carriers wit- month for 3,200 m3 semi-refrigerated carri- nessed periods with acceptable earnings but the ers. trend for most markets was downwards, and for shorter or longer periods heading towards operating costs. Figure 1: Result for the year usdm 100 A number of unexpected economic and political factors contributed to reduce growth in world 0 trade in 2012 to a meagre 2.8% with only the bulk -100 market among JL’s shipping businesses enjoying higher growth in demand, although with supply -200200 outpacing bulk demand growth. -300 The year opened with fairly difficult credit condi- -400 tions which had a detrimental effect, particularly Bulk Gas Tank Offshore on demand for bulk carriers. Tight monetary poli- Result before tax Tax a.o. Result for the year 2011 2012 J. Lauritzen A/S · Annual Report 2012 11

Spot rates for ethylene gas carriers were sta- Contracting for new vessels was down by almost ble throughout the year with spot rates for 50% in dwt terms compared to 2011. fully pressurised gas carriers rising in the second half of 2012. International shipping is in the midst of a large Spot market rates for semi-refrigerated gas supply crisis. Heavy deliveries during the past carriers in the 3,200-6,500 m3 segment start- years have lowered the average age of the world ed falling at the beginning of Q2 and declined merchant fleet in most segments. Additionally, quite strongly for the balance of the year. major ship building capacity has been established Second-hand tonnage prices declined by 5% which current order levels are far from matching. during the year. Thus, shipyards saw their order books recede by a • The product tanker market had a disappoint- third in dwt terms from year-end 2011 to year-end ing spot market which saw the three key 2012. Shipyards’ forward cover is now estimated routes down by 20% for MR product tankers. to be slightly less than two years, implying con- Period markets for MR product tankers lev- tinuing pressure on newbuilding prices. elled out at USD/day 13,500. Second-hand prices for tonnage were down by 5% for a JL Group five year-old MR product tanker. JL continued developing its business areas and a • Offshore markets for specialized tonnage in number of important decisions were taken during general had another busy year. However, the year. with only a limited number of long-term contracts signed, the shuttle tanker market was Of special importance was the joint venture with an exception to this. Orders for rigs and other HitecVision, Norway, in the promising offshore specialized tonnage for the offshore industry market, the formation of Axis OffshoreP te. Ltd. continued at a high level. and the following order for a modern semi-submersible ASV (Accommodation and Support Ves- Other commodity shipping markets did not fare sel) for delivery in 2015. better. As a result, demolition increased by about 40% to approximately 60m dwt from 2011 to Lauritzen Bulkers increased its focus on long-term 2012. Demolition of dry bulk tonnage increased cargo contract business and related market activi- by almost 50% to approximately 35m dwt, where- ties. as demolition of MR products tankers and smaller gas carriers fell to even lower levels than in 2011. Capesize bulk carriers left without contract cover Four shuttle tankers were scrapped in 2012 com- due to defaults were sold. pared to one unit in 2010 and 2011.

figure 2: Clarksea index 2010-2012 Usd/day

20000

16000

12000

8000

4000

0 2010-01 2010-07 2011-01 2011-07 2012-01 2012-07

Source: JL Business Analysis based on data extract from IMF website 12 J. Lauritzen A/S · Annual Report 2012

All business units were engaged in an energy savings programme launched in collaboration with DNV (Det Norske Veritas).

Group finances were further strengthened with a new corporate bond issuance and the bonds were listed on Oslo Stock Exchange.

During the year, JL took delivery of seven newbuildings, including three bulk carriers, one fully pressurized gas carrier, two product tankers and one shuttle tanker. In addition, four bulk carriers, two gas carriers and one product tanker were taken on long-term charter. At year-end 2012, JL had four vessels on order.

During the year, six long-term time-chartered vessels were redelivered according to plan.

During 2012, JL controlled a combined average fleet of 178 vessels compared to 151 vessels in 2011, cf. Figure 3, of which 59 were owned vessels (48 in 2011)

Total vessel days amounted to 65,073 in 2012 compared to 54,945 days reported in 2011.

Due to our fleet renewal and expansion efforts in recent years, we own a modern, efficient fleet of bulk carriers with an average age of 2.3 years, gas

figure 3: Average no. of vessels 210 180 150 120 90 60 30 0 2011 2012

Own Part owned Chartered Shared charter Other

z J. Lauritzen A/S · Annual Report 2012 13

carriers 8.6 years, product tankers 3.6 years and and represented outstanding capital expenditure shuttle tankers 5.3 years. of USD 103.9m.

Assets and solvency On the final trading day at Oslo Stock Exchange During 2012, investments in vessels amounted to (29 December 2012), JL’s unsecured bonds ma- USD 190m compared to USD 435m in 2011. Sale turing in 2015 were trading at NOK 102 (NOK of vessels totalled USD 80m compared to USD 100.6 at year-end 2011), cf. Figure 4, and JL’s un- 33m in 2011. Total invested capital was USD secured bonds issued in October 2012 (2017 ma- 1,960m at year-end 2012, down from USD turity) were listed on Oslo Stock Exchange on 16 2,344m at year-end 2011. January 2013.

The total book value of vessels amounted to USD At year-end 2012, JL’s solvency ratio was 37% 1,702m, down USD 267m on 2011 primarily due compared to 45% at year-end 2011. to sale of assets and write-downs. Brokers’ valuations of vessels totalled USD 1,312m down 16% After year-end events on 2011. The value in use of the vessels, taking In connection with the approval of JL’s Annual Re- contract coverage into account was higher than port for 2012, the Lauritzen Foundation decided to total book value. convert two subordinated loans of originally DKK 850m into equity. At year-end 2012, the loans in- At the end of 2012, JL’s newbuilding portfolio cluding accrued interest amounted to a total of comprised four owned vessels, three product DKK 903.1m, equivalent to USD 159.6m. The con- tankers and one bulk carrier for delivery in 2013 version increases JL’s solvency ratio from 37% at year-end 2012 to 44%.

figure 4: traded price (nok) for j. lauritzen nok 700m bond 2011-2012

111

109

107

105

103

101

95 2011/01 2011/04 2011/07 2011/10 2012/01 2012/04 2012/07 2012/10

source: oslo stock exchange 14 J. Lauritzen A/S · Annual Report 2012

Outlook for 2013 Demolition is poised for another record surpass- 2013 opened with very low spot earnings in all dry ing the approximately 60m dwt reported in 2012. bulk markets, a slight improvement in the market Bulk carriers will the biggest contributor for the for smaller semi-refrigerated gas carriers and third consecutive year. firmness for fully pressurised gas carriers. The stronger spot market for MR product tankers re- On average, the dry bulk market is expected to be corded in late 2012 continued. We expect eco- below 2012, but with some relief towards the sec- nomic growth to be somewhat subdued during ond half of 2013 when demand growth is expect- the first half of 2013. A number of indicators sug- ed to exceed supply growth. Smaller gas carriers gest that economic growth will strengthen as the are forecast to see the spot market weaken slight- year progresses. Once economic growth rises, we ly in 2013 compared to 2012 due to the relatively expect to see inventories rebuilding which will strong supply growth. The outlook for MR product contribute to seaborne trade growth. tankers is unpromising with only modest improvements in average spot market rates. Scheduled deliveries of merchant vessels amount to about 175m dwt in 2013. Due to cancellations The result for 2013 is anticipated to remain unsat- and slippage which are expected to continue as a isfactory with an expected loss of USD (75-100)m result among other things of the tight credit and (2012: USD (350)m). lending situation in the shipping industry, actual deliveries are likely to be 25% below scheduled EBITDA is expected to be in the range of USD 60– deliveries. Dry bulk deliveries are anticipated to 80m (2012: EBITDA of USD 88.7m). Taking the fall by about a third to around 70m dwt in 2013. sale of the Accommodation and Support Vessel Deliveries of MR product tankers are expected to Dan Swift to the Axis Offshore Pte. Ltd. and one- be of the same order as in 2012, whereas smaller off items included in the 2012 EBITDA amounting gas carriers are in for a sizeable rise in deliveries. to USD 33.7m into account, the expectations for A total of 19 shuttle tankers are scheduled for de- 2013 are slightly up compared to 2012. The im- livery in 2013, however with possible delays for a provement primarily relates to Lauritzen Bulkers’ number of these. redelivery of time-charter vessels and increase of Lauritzen Tankers’ operational fleet.

J. Lauritzen A/S · Annual Report 2012 15

Depreciations are expected to be approximately 10% down compared to 2012 primarily as a consequence of the 2012 write-down’s and sale of assets.

Income from joint ventures is anticipated to be unsatisfactory but up on 2012. The expected income from Axis Offshore Pte. Ltd. will not off-set the forecast loss from other joint ventures.

Net finance is expected to be in line with the result in 2012. Currency and interest rate fluctuations may affect the result. Tax is expected to be limited and minorities’ share of the result is expected to decrease.

During 2013, JL will take delivery of the last four vessels on the current newbuilding program, three MR product tankers and one handysize bulk carrier. A part-owned handysize bulk carrier newbuilding will also be added to the fleet and three MR product tanker newbuildings will enter the fleet on long-term time-charter.

Capital expenditure including dockings amounts to USD 123m to be financed by at-delivery financing and own funds.

18 J. Lauritzen A/S · Annual Report 2012

Lauritzen Bulkers

In 2012, Lauritzen Bulkers’ result amounted to the existing strategy based on spot and short to USD (294.5)m compared to USD (24.7)m in 2011, medium-term cargo contracts. cf. Table 1. The result was significantly impacted by one-off items with a net effect of USD (200.3)m The handymax fleet is managed similarly to the (2011: USD (27.7)m) comprising write-downs, handysize vessels, whereas most of the fleet of sale of claims and sales of vessels due to counter- capesize and panamax bulk carrier fleet is em- party defaults. Adjusted for one-off items, the re- ployed on long-term time-charter. sult was USD (94.2)m, down from USD 3.0m in 2011 due to the weaker bulk markets and income The main business risks are market and counter- lost as a consequence of counterparty defaults. party risks.

The result was very unsatisfactory. Counterparty risks are managed through continuous monitoring and evaluation of charterers’ sub- Business model and risk management stance and performance. Lower contract cover Lauritzen Bulkers (LB) controls a fleet of more for the handysize and handymax operations than 100 handysize, handymax, panamax and means exposure to short-term market volatility capesize bulk carriers with a low average age. The which is to some extent evened out by the size of fleet comprises a portfolio of owned, part-owned, the controlled fleet. This risk is mitigated by book- and time-chartered vessels as well as vessels ing cargoes for shorter periods (typically up to six committed by partners. Active fleet portfolio man- months) or longer on affreightment contracts. agement via the sale, purchase and time-charter in/out of vessels is an important element of the Main events business model. Fleet renewal continued with the aim of building a modern, fuel-efficient, versatile fleet and in 2012 The handysize operation, which is LB’s largest the controlled fleet increased by 15 newbuildings, business activity, comprises a significant fleet of of which three were owned. homogeneous vessels, ensuring economies of scale, operational optimisation and extensive cus- During the year, three long-term time-chartered tomer service. 2012 marked a strategic change as and four pool vessels were redelivered as planned. focus on long-term cargo contracts was added to J. Lauritzen A/S · Annual Report 2012 19

The handysize fleet increased by 12 newbuildings, outperformed the BHSI (Baltic Handysize Index). of which three were owned and four were taken This was achieved through a combination of serv- on long-term time-charter. Pool partners contrib- ing existing and new customers and exploitation uted five additional handysize newbuildings and of short-term trading opportunities. six second-hand handysize bulk carriers to the controlled fleet. Towards the end of the year, Island View Shipping announced its withdrawal from the handysize The handymax fleet grew by three newbuildings pool, meaning that 14 handysize vessels will leave on long-term time-charter. the pool in the first half of 2013. The withdrawal will not impact the critical mass of LB’s handysize LB was severely affected by counterparty defaults operations. with subsequent sales of two capesize bulk carriers due to strategic considerations. The risk man- LB was the runner-up as “Ship Operator of the agement desk and risk management procedures Year” in Lloyd’s List Awards Asia 2012. were further enhanced during the year, and a cargo desk was established focusing on medium to fleet long-term cargo contracts. In 2012, the total number of ship-days reached 43,539 with 119 vessels on average, 23% up on Earnings from the handysize operations yet again the figure reported in 2011, cf. Figure 5.

The operational fleet of handysize bulk carriers av- eraged 80 vessels compared to 65 vessels in 2011. At year-end 2012, the controlled handysize table 1: key figures usdm fleet comprised 90 vessels. 2012 2011 On average, the handymax fleet comprised 22 vessels in 2012 compared to 14 vessels in 2011, Revenue 361.1 330.9 with a further 4 panamax vessels (four in 2011) EBITDA 4.0 75.8 and 8 capesize vessels (seven in 2011). Depreciations and write-downs (150.7) (37.9) Profit/(loss) on sale of vessels etc. (96.6) (38.6) At year-end 2012, LB had 43 vessels on long-term Operating income (243.2) (0.7) time-charter (including two newbuildings for de- Share of profit in joint ventures (28.6) 2.3 livery in 2014), with purchase options for 9 of Finance net (25.0) (18.4) these. Profit/(loss) before tax (296.8) (16.8) JL's share of profit/(loss) (294.5) (24.7) The owned fleet comprised 25 vessels at the end Invested capital (average) 1,108.3 1,121.5 of 2012 (24 in 2011) with part ownership of a fur- Return on invested capital (24.5)% 0.1% ther 18 vessels (21 in 2011). Average no. of employees 590 493 At the end of 2012, the average age of the owned figure 5: Average no. of vessels fleet was 2.3 years.

140 Fleet management 120 Technical management, including crewing for 100 owned bulk carriers, was undertaken by New Century Overseas Management Inc., Manila, 80 Fleet Management Ltd., Hong Kong and Synergy 60 Maritime Pte., Singapore. 40 20 0 2011 2012

Own Part owned Chartered Shared charter Other 20 J. Lauritzen A/S · Annual Report 2012

Our technical department works closely with ex- Global market developments ternal providers on all aspects of achieving safe, The period market for bulk carriers had another cost-effective and reliable vessel operations. difficult year with capesize 12 month period rates down by 20% and handysize/handymax down by Three scheduled dry dockings were completed in 30% compared to 2011. Panamax bulk carriers 2012. Unscheduled off-hire for LB’s owned fleet suffered even more. The period market decline came to 0.29 % in 2012 (0.31 % in 2011). was due to deteriorating market imbalances which saw second-hand tonnage prices falling by HSEEQ 20% or more from year-end 2011 to year-end Our in-house technical department monitors 2012. overall fleet safety performance and energy efficiency in order to comply with applicable national 2012 started with a very weak spot market for all and international rules and regulations as well as segments, with handysize and handymax recov- increasing client requirements. ering from end February and peaking in late July. Capesize had stronger markets from September We constantly endeavour to minimize risks asso- onwards, as did panamax, but the rise could not ciated with our operations. In 2012, we enrolled be sustained. Compared to 2011, the spot market with ship vetting specialists RightShip’s rating fell by approximately 30% for handysize and programme and the average risk rating of the handymax in 2012, cf. Figure 6. owned fleet was 4.9 on the RightShip vetting scale (with 5.0 as best rating) in mid-December 2012. Demand for bulk carriers Demand for bulk carriers is estimated to have During 2012, we developed a range of different grown by around 6% in 2012 compared to 7.5% in initiatives to support our ongoing efforts to reduce 2011, cf. Figure 7. Many factors contributed to the fuel oil consumption and reduce emissions of fairly high, albeit lower than generally expected,

SOx, NOx and CO2. Our specific initiatives are list- demand growth. ed in JL’s Corporate Responsibility report 2012 p. 16-17. J. Lauritzen A/S · Annual Report 2012 21

Figure 6: Spot market rates 2010-2012 usd/day

36000 5000

30000 4000 24000 3000 18000 2000 12000 6000 1000 0 0 2010/01 2010/07 2011/01 2011/07 2012/01 2012/07

Average of the 6 T/C Routes for the Baltic Handysize Index Average of the 6 T/C Routes for Baltic Supramax Index Baltic Exchange Dry Index (1st November = 1334) - RHS

Source: Clarkson Research Services

Figure 7: Demand for dry bulk carriers 2003-2012 dwtm

600

500

400

300

200

100

0 03 04 05 06 07 08 09 10 11 12

Iron Coal Grain+Soya Minor Bulks

Source: LB Business Analysis based on data derived from MSI Ltd.

Figure 8: Supply of dry bulk carriers 2003-2012 (beginning of year) dwtm

800 700 600 500 400 300 200 100 0 03 04 05 06 07 08 09 10 11 12

Capesize Panamax Handymax Handysize

Source: LB Business Analysis based on data derived from Clarkson Research Services 22 J. Lauritzen A/S · Annual Report 2012

Uncertainty in credit markets as well as fairly tight Demolition of bulk carriers amounted to approxi- monetary policies in for example China in early mately 35m dwt compared to 23.2m dwt in 2011 2012 led commodity consumers and traders to due to the poor market, low probability of employ- keep inventories low in many parts of the world, ment and high costs of maintenance. or to actually reduce them. During the following months, economic uncertainties in Europe in- At year-end 2012, the orderbook for panamax creased with negative repercussions for econom- stood at 30% of the existing fleet and 15-18% for ic growth for the remainder of the year. the three other segments. Taking into consideration the age profile and the demand outlook by A combination of reduced economic activity in segment, it would appear that handysize is in a mature economies and economic policies to curb comparatively well-balanced situation. inflationary pressures in China led to lower fixed investment growth which in turn reduced growth At year-end 2012, the average age of the world in imports of iron ore and other minerals. bulk fleet was slightly over 11 years compared to 12.5 years at year-end 2011. There are huge aver- Coal, mainly steam coal, was the biggest contrib- age age differences across segments, cf. Figure 9. utor to demand growth for bulk carriers in 2012. Falling prices for coal due to ample supplies in After year-end events combination with rising electricity production in- Peter Borup took up his position as President of creased power plants’ demand for steam coal. Lauritzen Bulkers on 1 February 2013. This demand was further increased by droughts and high prices for natural gas in Europe. Outlook for 2013 We expect the very low spot market rates charac- Grain shipments were at higher levels during the terising the end of 2012 to continue into the first first half 2012 than in 2011 but due to crop failures part of 2013, partly due to the low level of eco- in various parts of the world, prices increased to nomic activity as well as uncertainty in many parts levels that made consumers postpone purchases of the world, partly due to continued high delivery which had a detrimental impact on demand in late schedules in the first part of 2013. Q3 and Q4, affecting particularly handysize and handymax. However, 2013 is expected to witness a decelera- tion in supply growth as deliveries are forecast to Supply of bulk carriers fall from about 100m dwt in 2012 to about 65- At the beginning of 2012, the world fleet of bulk 70m dwt in 2013. Demolitions are expected to in- carriers amounted to 616m dwt. Deliveries and crease slightly from 35m dwt in 2012. Fleet demolitions both increased in 2012 compared to growth is thus projected to fall from 10.5% in 2011, leading to net fleet growth of 10.5% (14.7% 2012 to about 6% in 2013. in 2011) with the world bulk fleet at 680m dwt at year-end 2012, cf. Figure 8.

Fleet growth in the handymax, panamax and capesize segments was 10%, 13% and 12% re- Figure 9: bulk carrier age profile and order book at spectively whereas the handysize fleet only in- year-end 2012 (% of existing fleet) creased by 2%. 120.0% 100.0% Orders for bulk carriers declined for the second 80.0% consecutive year, and as a result of the heavy delivery schedule which was characterised by less 60.0% slippage than expected, the order book was down 40.0% to approximately 20% of the existing fleet at year- 20.0% end 2012. 0.0% Handysize Handymax Panamax Capesize 25 years or more 15-24 years 0-14 years Order book

Source: LB Business Analysis based on data derived from Clarkson Research Services J. Lauritzen A/S · Annual Report 2012 23

As in 2012, coal is expected to be a key driver of demand together with iron ore, as fiscal stimulus in China and strengthening economic activity in mature economies gather pace during the year. Grain shipments are expected to rise in the second half of 2013 as crops are expected to return to normal levels. Minor bulks are also poised for continued growth. Overall, an increase in demand growth is expected for 2013 compared to 2012, particularly in the second half of the year.

We expect the above to stop the decline in the spot market during 2013 with some improvements in the second half. With large surplus shipbuilding capacity, tonnage prices may continue their decline into 2013.

26 J. Lauritzen A/S · Annual Report 2012

Lauritzen kosan

The result was USD 8.9m, up from USD 6.5m in ters into affreightment contracts, seeking to maxi- 2011 mainly due to improved trading conditions mise effective fleet cover. in the first half of 2012 and a larger average fleet of fully pressurised gas carriers, cf. Table 2. The While these contracts provide protection against result included USD 1.8m in gains from the sale of short-term market fluctuations, due to their struc- vessels, down from USD 2.3m in 2011. ture they do entail some scheduling risks. These risks are connected with the flexibility provided by The result was in line with expectations and ac- the affreightment contracts in terms of charterers’ ceptable taking the market conditions into consid- right to manage their flows in accordance with the eration. business cycle and their specific operations.

Business model and risk management Main events Lauritzen Kosan (LK) controls a modern fleet of 43 LK took delivery of the last of a series of six 3,600 gas carriers with an average age of 8.7 years. The m3 fully pressurised gas carriers from Yangzhou fleet comprises owned, part-owned, chartered Kejin Shipyard in China designed for the growing vessels and vessels committed by partners. Ac- Asian gas industry. tive fleet portfolio management via cargo and period cover and the sale and purchase of vessels Two 3,500 m3 fully pressurised gas carrier new- constitute key elements in the business model. buildings were taken on long-term time-charter from Japanese owners. Strict health, safety and environmental standards and stringent client requirements are achieved A 3,500 m3 fully pressurised gas carrier was sold through close in-house collaboration between the to Korean interests. technical and commercial departments. Continu- ous improvements through education, innovation LK moved into its own premises in Manila in 2012. and careful implementation of procedures en- The offices will be used for crew-related matters hance operational flexibility and higher fleet utili- such as training and briefing/debriefing senior of- zation. ficers.

As a leading tonnage supplier to the large petro- 2012 saw the launch of Project REJUICE, a major chemical and oil companies, LK continuously en- initiative to reduce fuel consumption and emissions. J. Lauritzen A/S · Annual Report 2012 27

fleet Fleet Management Total ship-days reached 15,617 for 42.8 vessels During the year, Lauritzen Kosan Fleet Manage- on average compared to 14,366 days for the aver- ment (LKFM) handled the technical management age of 39.4 vessels reported in 2011, cf. Figure 10. for the ethylene and semi-refrigerated gas carriers. Part-owned Star Management Associates, LK’s fleet comprised 35 owned, part-owned and Tokyo, handled the technical management for the chartered vessels at year-end 2012. The average fully pressurised vessels, although one FP vessel age of the company’s owned fleet was 8.6 years was moved to LKFM towards the end of the year. compared to 8.1 years at year-end 2011. At year- end 2012, the average age of the ethylene fleet Six scheduled dry-dockings were completed dur- was 4.6 years (3.6 years at year-end 2011), with ing 2012 (six in 2011). Unscheduled off-hire came the semi-refrigerated fleet at 16.7 years (15.7 to 3.0% in 2012 (2.3% in 2011). years in 2011) and the fully pressurised fleet at 6.7 years (7.0 years in 2011). Technical fleet management is based on health, safety, security, environmental and technical poli- The operated fleet consisted of 29 semi-refrigerat- cies to ensure efficient vessel operations in order ed/ethylene gas carriers on average (28 vessels in to comply with international rules and regulations 2011) and 14 fully pressurized gas carriers (11 in as well as stringent client expectations. 2011) with a combined capacity of about 221,950 m3 (212,650 m3 in 2011). A total of 156 client vetting inspections were performed in 2012 (143 in 2011) in order to maintain pertinent client approvals of the vessels. On average, 5.4 observations were received (6.2 in 2011). We focused especially on industry-standard SIRE table 2: key figures usdm inspections in which 4.8 observations were re- 2012 2011 corded on average per inspection (5.4 in 2011). So-called crew-related observations, which could Revenue 210.3 143.2 have been prevented by the crew, continued to EBITDA 35.7 33.2 decline (2.4 in 2012; 2.8 in 2011). Crew-related Depreciations and write-downs (27.2) (26.4) observations in SIRE inspections fell from 2.6 in Profit/(loss) on sale of vessels etc. 1.8 2.3 2011 to 2.3 in 2012. Operating income 10.3 9.1 Share of profit in joint ventures 0.7 2.2 Vessel crews are in the front line and their perfor- Finance net (1.9) (3.7) mance and attitude are essential in delivering the Profit/(loss) before tax 9.1 7.7 expected service. LKFM follows a strategy of JL's share of profit/(loss) 8.9 6.5 training and education combined with perfor- Invested capital (average) 408.3 423.4 mance incentives. Training operations in Manila Return on invested capital 2.7% 2.7% were expanded and for the first time courses were Average no. of employees 505 403 given in Bilbao to Spanish and Cuban seafarers. To support our activities in Manila, LKFM person- figure 10: Average no. of vessels nel moved into the newly established Lauritzen Kosan offices in Makati. 50 A new incentive scheme was successfully intro- 40 duced in 2012 for captains and chief engineers in 30 which performance is assessed and rewarded according to a set of key performance indicators for 20 the vessel under their command. The scheme will be expanded in 2013 to include all officers on 10 board. 0 2011 2012

Own Part owned Chartered Shared charter Other 28 J. Lauritzen A/S · Annual Report 2012

HSSEQ Global market developments Health and safety is about protecting people and After opening on a fairly strong note, the spot our focus on improving the safety culture for all market weakened for smaller semi-refrigerated employees is essential for us. During the past gas carriers from Q2. Smaller fully pressurised years, a broad range of safety initiatives were gas carriers enjoyed a rising trend throughout the launched and we will continue to focus on year, whereas ethylene gas carriers witnessed a strengthening our culture of embracing safety. fairly flat market, cf. Figure 11.

The focus for the 2012 safety campaign was on Period markets for 2012 were down by about 5% work routines and factors relating to the preven- for most types of smaller gas carriers. tion of fatigue. Fatigue is recognized in the industry as a significant contributory factor in breaches Second-hand prices declined marginally, whereas of safety. Our focus targeted implementation of resale and newbuilding prices declined by 5-15% new user-friendly software, interviews with crew respectively during the year. members, changing procedures and responsibilities, analyses of work routines and discussions on Demand for gas carriers work and watch schedules. Efficient planning and Demand for smaller gas carriers almost stagnated on board resource utilization for our shipboard in 2012 on a cbm-mile basis after having posted management are regarded as offering the poten- strong growth during 2010 and 2011. Petrochemi- tial for increased performance. The yardstick for cal gases made a negative contribution to de- our efforts and ambitions is for zero harm inflicted mand growth with primarily LPG making a posi- by LK on any employee. tive contribution. Transport of ammonia is not a significant part of demand for small gas carriers, Piracy and robbery unfortunately remain a threat and hence provided limited support in 2012, cf. to seafarers although there was a significant de- Figure 12. crease in attacks and hijackings during 2012. Rec- ognising our seafarers as our most important as- The key drivers for rising demand for LPG in small- sets, LK continues to use private armed security er gas carriers were Latin America and parts of teams on board our vessels operating in high risk Asia. Increased availability of LPG in North Ameri- areas. ca and in Africa with stagnant supplies in the Mid- dle East in combination with rising demand both Efforts to protect the environment continued in from the household sector and the petrochemical 2012. LKFM maintains ISO 14001 certification industry were behind the rise in demand for small- with continuous improvement projects. er gas carriers transporting LPG.

PROJECT REJUICE

In 2012, Lauritzen Kosan launched the project REJUICE, a major initiative focusing on reducing fuel consumption and the environmental impact of our gas carrier operations. Specific initiatives for change have been brought in after a study of current operational practices, such as trim and ballast management, hull cleaning, improved regulation of power consumers and optimization of fleet utilization. Together, these initiatives are expected to give a significant reduction in our carbon footprint in the form of emissions. J. Lauritzen A/S · Annual Report 2012 29

Figure 11: Spot market rates 2010-2012 usd ‘000/month

700

600

500

400

300

200

100

0 2010/01 2010/07 2011/01 2011/07 2012/01 2012/07

East (F/P) coaster West (S/R) coaster 6500 S/R 10000 ETH

Source: LK business analysis Based on data from Fearnley’s

Figure 12: Demand for smaller gas carriers 2003-2012 by product (mill tons)

- 03 04 05 06 07 08 09 10 11 12

Ethylene Propylene Butadiene VCM LPG Ammonia

Source: LK Business Analysis based on data from ViaMar AS Figure 13: Supply of smaler gas carriers 2003-2012 by type in cbmm

5 4.5 4 3.5 3 2.5 2 1.5 1 050.5 0 03 04 05 06 07 08 09 10 11 12

S/R vessels F/P vessels

Source: LK (23,000 CBM) Business Analysis based on data from ViaMar AS 30 J. Lauritzen A/S · Annual Report 2012

Overall, there was a slight decline in transport of petrochemical gases in 2012 with VCM and ethylene declining, and propylene and butadiene growing. The worsening economic climate, particularly in Europe but also in parts of Asia, led to a reduction in demand growth for plastics and thus in petrochemical gases. The production of ethylene in China in 2012 is estimated to have been about 2% below 2011 with production of primary plastics up by 6% during the first 11 months of 2012. This has led to a strong increase in demand for ethylene imports into China.

The severe tightening of sanctions on Iran for petrochemical exports with effect from May 2012 affected smaller gas carriers severely, as Iran is a key exporter of ethylene, and the disappearance of Iran as a supplier had a detrimental effect on ethylene transportation mileage.

Transportation of butadiene benefitted strongly from demand in Asia, whereas movements with propylene increased due to deficits emerging in the US, partly due to feedstock becoming lighter with the increased use of ethane as feedstock and strongly growing demand in Asia.

Supply of gas carriers The fleet of smaller gas carriers in the 3,200- 22,999 m3 segment increased by an estimated 4% in 2012 which marked a decline in the growth rate compared to the past five years. At year-end 2012, the fleet was estimated to be slightly above 4.5m m3, cf. Figure 13. Total deliveries were estimated at 0.2m m3 with deletions in the order of 0.05m m3 in 2012.

Fully pressurised gas carriers accounted for near- ly two thirds of all deliveries continuing a period of high deliveries, whereas deliveries of semi-refrigerated and fully-refrigerated carriers declined.

The current order book including options amounts to 0.6m m3 equal to 13% of the existing fleet, of which 85% is semi-refrigerated tonnage. New orders increased in 2012 fivefold to almost 0.4m m3 compared to 2011. About 50% of orders in 2012 were for ethylene carriers. All orders are for delivery in 2013-14, including those ordered in 2012. The schedule for delivery is almost evenly spread over the coming two years. J. Lauritzen A/S · Annual Report 2012 31

Total deletions amount to approximately 0.05m Supply growth before demolitions is estimated at m3, equal to 1.5%, with the majority being semi- around 6%. Whereas the age profile suggests the refrigerated in the 5-15,000 m3 segment. This is potential for higher demolitions in 2013, we ex- the second year with a comparatively low demoli- pect a net supply growth of 3%. This will be of the tion figure which could be ascribed to the firm same order as forecast demand growth, although market with limited fleet growth. with demand growth lagging during the first half of 2013. At year-end 2012, the average age of the world fleet of semi-refrigerated gas carriers (including both ethylene and fully-refrigerated units) was 13.8 years and the order book represented 15,6% of the existing fleet. The average age of fully pressurised gas carriers was 10,6 years and the order book was equal to 9,2% of the existing fleet, cf. Figure 14.

Outlook for 2013 Various factors have the potential to keep demand growth for trade in petrochemical gases and en- suing demand for smaller gas carriers low in the first half of 2013 with improvements as the year progresses. These include the continuation of sanctions against Iran, the poor short-term economic outlook particularly in Europe and the pos- sibility of major petrochemical capacity coming on stream in China.

Figure 14: Smaller gas carriers age profile and order book at year-end 2012 (% of existing fleet)

120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Semi-Refrigerated Fully-pressurised

25 years or more 15-24 yeas 0-14 years Order book

Source: LK Business Analysis based on data derived from Clarkson Research Services

34 J. Lauritzen A/S · Annual Report 2012

Lauritzen tankers

In 2012, Lauritzen Tankers’ result amounted to chase of vessels is an integrated part of the busi- USD (50.6)m compared to USD (4.0)m in 2011, cf. ness model. Table 3. The result was significantly impacted by write-downs and other one-off items with a net ef- Technical management responsibilities have been fect of USD (46.5)m (2011: USD 2.5m). Adjusted outsourced to external service providers. for one-off items, the result was USD (4.0)m, up from USD (6.6)m in 2011. Main events Two 53,500 dwt MR product tanker newbuildings The result was unsatisfactory. were delivered to the fleet in 2012 and they were both employed on long-term time-charter. Business model and risk management Lauritzen Tankers (LT) controls a fleet of 18 mod- One 50,000 dwt MR product tanker built in 2010 ern MR product tankers with an average age of was taken on long-term time-charter with delivery 3.6 years. The controlled fleet comprises owned, mid-2012 and placed in the Hafnia Management’s part-owned, and time-chartered vessels as well as MR pool. vessels committed by partners. fleet Vessels employed in the spot market or on COA In 2012, total ship-days reached 4,646 with 12.7 are commercially and operationally managed by vessels on average compared to the 4,405 days the MR pool of part-owned Hafnia Management, with 12.1 vessels on average reported in 2011, cf. Copenhagen. Pooling the spot business reduces Figure 15. LT’s market risk, inasmuch as the coverage obtained by the pool in terms of meeting customer At year-end 2012, LT controlled a fleet of 18 MR requirements and being spread across many mar- product tankers. kets provides better protection against adverse market movements. In 2012, LT remained the Fleet management largest tonnage provider to this pool. Technical management of owned ships is provided by Wallem Shipmanagement in Hong Kong LT uses its market access to charter in/out ton- and Bergen as well as MMS in Singapore and LT’s nage from/to first class charterers, providing fixed technical department works closely with both income with limited risk. In addition, sale and pur- suppliers on all aspects of achieving safe, cost-effective, responsible vessel operations. J. Lauritzen A/S · Annual Report 2012 35

There were zero dry-dockings in 2012 (zero in We continue to engage and encourage crewing 2011). The unscheduled off-hire for LT’s owned by experienced, responsible multinational seafar- fleet was 0.8% (1.3% in 2011). ers. Crews are selected for their skills in order to match our business profile and this is done in In 2012, seven owned vessels were inspected 23 close collaboration between our external techni- times by oil majors. During the year, our special cal management service providers and our tech- focus was on improving vessel performance nical and operational departments, ensuring good against the Oil Companies International Marine dialogue and mutual understanding. Forum’s (OCIMF) Ship Inspection Report Pro- gramme (SIRE). Accordingly we undertook addi- HSSEQ tional onboard training and development for our We are committed to a strict focus on health, vessels and offices. Our goals were met by achiev- safety, security and environmental protection. ing an average of 3.9 observations per vetting, This is being achieved by comprehensive safety which is better than industry average of 5.7. Crew- procedures, a focus on security and by maintain- related observations accounted for an average of ing energy-efficient operations. We thus work 2.7 of total observations. The remaining 1.2 obser- closely with external technical managers and vations related to our offices and vessel construc- monitor their performance. Consistent dialogue tion. with these providers enables us to meet client expectations for safe and efficient operations.

Global market developments Table 3: key figures usdm Average spot earnings on the three key MR prod- 2012 2011 uct tanker routes were down by 20% compared to 2011, cf. Figure 16. Unsatisfactory refining mar- Revenue 61.0 62.0 gins towards the end of 2011 led refineries to re- EBITDA 14.3 12.2 duce output which dampened demand for prod- Depreciations and write-downs (55.3) (6.3) uct tankers in early 2012, mainly in the Far East. Profit/(loss) on sale of vessels etc. - 0.0 Increased economic uncertainty in Europe during Operating income (40.9) 5.9 the summer contributed to depressing the Atlan- Share of profit in joint ventures (1.1) 0.2 tic spot market during Q2 and Q3 before some Finance net (7.6) (5.8) seasonal strength was noted in Q4. Profit/(loss) before tax (49.5) 0.4 Twelve month period rates for MR product tank- JL's share of profit/(loss) (50.6) (4.0) ers were on average at the same level of approxi- Invested capital (average) 274.8 222.7 mately USD/day 13,500 in 2012 as in 2011, Return on invested capital (15.3)% 2.7% whereas period rates for LR1 product tankers fell Average no. of employees 154 121 slightly. Tonnage prices have fallen since the end of 2011; for a five year-old MR product tanker by almost 5%.

During the first months of 2012, oil prices reached figure 15: Average no. of vessels their highest level since 2008 in part due to uncer- 14 tainty relating to the sanctions against Iran, which 12 eventually led Saudi Arabia and Qatar to increase 10 production. With Libya resuming production and Iraq steadily increasing its production, oil prices 8 declined slightly during Q3 and then stabilised at 6 approximately USD 110 per barrel in Q4. 4 2 Demand for product tankers 0 Global oil consumption grew considerably less 2011 2012 than expected due to higher oil prices, but mainly due to less vigorous economic growth than ex- Own Part owned Chartered Shared charter Other 36 J. Lauritzen A/S · Annual Report 2012

Figure 16: spot market rates key product tanker routes 2010-2012

20000

15000

10000

5000

-5000 2010-01 2010-07 2011-01 2011-07 2012-01 2012-07

BCTI TC2_37 TCE: 37,000mt CPP Rotterdam- New York BCTI TC3_38 TCE: 38,000mt CPP Aruba (Caribs) - New York BCTI TC4-TCE: 30,000mt, CPP/UNL Singapore- Chiba (Japan) Source: Clarkson Research Services

Figure 17: global refined products trade 2003-2012 (mill tons)

1000 900 800 700 600 500 400 300 200 100 0 03 04 05 06 07 08 09 10 11 12

Gasoline Kerosene Residual fuel Gas and diesel oil Other products

Source: LT Business Analysis based on data extract from the Joint Oil Data Initiative

Figure 18: Supply of product tankers 2003-2012 DWTm 160

140

120

100

0 03 04 05 06 07 08 09 10 11 12

10-39.900 Dwt 40-59.900 Dwt 60-79.900 Dwt 80.000+ Dwt

Source: LT Business Analysis based on data from MSI Ltd. J. Lauritzen A/S · Annual Report 2012 37

pected. According to the International Energy Deliveries of MR product tankers amounted to Agency world oil consumption was up by only 3.7m dwt in 2012, similar to deliveries noted in 1.1% on 2011. 2011 whereas scrapping fell to 0.2m dwt from 0.5m dwt in 2011. Consequently, seaborne trade in oil products is estimated to have grown by a modest 2.2% in In general, contracting of product tankers in- 2012, similar to the growth in 2011, cf. Figure 17. creased by 35% in 2012. Contracts for MR product tankers increased by 15% to 2.6m dwt com- Trading patterns continued to change in 2012. pared to 2011. Most notably, US imports of refined products continued to decline, having fallen by one third in the At year-end 2012, the average age of MR product course of only four years. During the same period, tankers was 7.8 years (LR1 6.5 years) and the or- US exports of refined products almost doubled, der book for MR product tankers amounted to leading to net exports of some 0.8m barrels per 10% of the existing fleet (LR1 9%), cf. Figure 19. day in 2012. Outlook for 2013 Europe experienced a slight decline in imports, A combination of weak economic growth and whereas mature economies in the Pacific contrib- high prices will continue to limit growth in oil con- uted to rising seaborne trade, partly reflecting the sumption, whilst at the same time, natural gas is dismantling of old refineries. The same applies to making inroads into markets normally supplied by emerging markets in both Asia and in Latin Amer- oil. In 2013 world oil consumption is thus forecast ica. to be another year of low growth of the order of 1%. Supply of product tankers By year-end 2012 the fleet of product tankers (in- This implies the risk of another year of low growth cluding chemical/oil tankers) amounted to 152m for product tankers in general, however with up- dwt, up by almost 4% on 2011. The MR segment side potential in terms of refinery closures in ma- (40-60,000 dwt) increased by 6% in both 2012 ture economies that could lift demand due to ad- and 2011, whereas the supply of LR1 product ditional ton-miles. tankers (60-80,000 dwt) increased by 4% in 2012 compared to 9% in 2011, cf. Figure 18. For 2013, we expect that the product tanker fleet will only increase by a couple of percent, however with fleet growth of the MR segment expected to be higher.

This suggests that only a minor improvement in the market balance for MR products tankers is to be expected in 2013. Figure 19: pRODUCT TANKERS age profile and order book at year-end 2012 (% of existing fleet)

100.0%

80.0%

60.0%

40.0%

20.0%

0.0% MR (40-60.000dwt) LR1 (60-80.000dwt)

25 years or more 15-24 years 0-14 years Order book

Source: LT Business Analysis based on data derived from Clarkson Research Services

40 J. Lauritzen A/S · Annual Report 2012

Lauritzen offshore

In 2012, Lauritzen Offshore’s result amounted to Main events USD 8.8m, up from USD 3.7m in 2011, cf. Table 4. Dan Sabia, a 59,000 dwt shuttle tanker newbuild- Earnings for 2012 were significantly impacted by ing, was delivered from Cosco Nantong Shipyard, the formation of Axis Offshore including a one-off China, in early January 2012. On delivery, the ves- transaction loss of USD 7.5m. Adjusted for the sel commenced a 12-year bareboat contract for one-off transaction loss, the result in 2012 was Transpetro, a wholly-owned subsidiary of Petro- USD 16.3m, up from USD 3.7m in 2011. The in- bras. crease was mainly due to the two shuttle tanker newbuildings delivered late 2011 and early 2012. Due to growing market potential, a 50/50 joint venture with HitecVision, Norway, was estab- The result was in line with expectations and re- lished in the ASV segment with effect from 30 garded as acceptable. June 2012. The new company, Axis Offshore Pte. Ltd. initially comprises JL’s monohull ASV Dan Business model Swift currently on long-term contract to the Brazil- Our offshore activities comprise technologically ian oil major Petrobras. advanced, dynamically positioned Accommoda- tion and Support Vessels (ASV) and shuttle tank- In September 2012, Axis Offshore announced an ers for employment in the offshore exploration order for a Semi-Submersible accommodation and production sector. ASV operations are devel- vessel at Cosco Qidong Offshore, China, for deliv- oped as a joint venture whereas the shuttle tanker ery during the first quarter of 2015 to meet strin- business is wholly-owned. gent North Sea operating requirements. Read more at www.axisoff.com As our shuttle tankers are employed on long-term contracts, business risks relate to counterparty Fleet management risk and the renewal/alternative employment op- High quality fleet management is vital in the off- tions. We continuously monitor risks and new shore industry and all issues relating to crewing, business opportunities. health, safety and the environment are managed by in-house experts, providing assurance for compliance with the requirements laid down in applicable national and international rules and regulations.

There were zero dry-dockings 2012 (two in 2011). Unscheduled off-hire for the shuttle tanker fleet was zero in 2012 (also zero in 2011).

Of the three owned shuttle tankers, only Dan Ea- gle had a vetting under the Ship Inspection Report Programme (SIRE) in 2012. Four minor observations were made. Three were immediately recti- fied but the last related to vessel design. The two shuttle-tankers Dan Cisne (2011) and Dan Sabia (2012) have both been lined up for future SIRE inspections during the year.

Crew are regarded as a vital resource, so all officers for offshore vessels are selected carefully. Where ratings are concerned, close collaboration with skilled and proven crew managers continued in 2012 to ensure a high level of retention. Off- shore is a highly competitive segment for crewing J. Lauritzen A/S · Annual Report 2012 41

and so a lot of resources are used to constantly a Lost Time Injury Frequency (LTIF) of zero and a keep officers and ratings updated with specialized Total Recordable Case Frequency (TRCF) of 5.2. courses and training in order to meet our clients’ expectations. Global market developments Unlike the two previous years, 2012 was a some- HSSEQ what quiet year in terms of new projects being Lauritzen Offshore (LO) is committed to providing tendered by operators. A 15-year contract for two safe working conditions in a markedly diverse Suezmaxes in the North Sea was signed, and the multicultural and multilingual working environ- market also saw two shuttle tankers obtaining ment. contract extensions.

We have management systems certified to inter- The huge expansion in the market for shuttle tank- national standards in place to ensure the well-be- ers in the past couple of years has boosted the or- ing of staff, third party contractors and others who der book to 35% of the existing fleet. Part of the may be affected by our activities, in an effort to fleet is growing fairly old but we expect that a minimize any impacts. market for older vessels will develop in Africa and South East Asia, as new and modern DP2 or DP3 In 2012, LO continued to implement our health, vessels come on stream. safety and environment strategy. Results included Including orders (two of which are options), the world fleet comprises almost 100 units. Average vessel age is decreasing, cf. Figure 20. Only nine table 4: key figures usdm shuttle tankers of the total fleet are less than 2012 2011 60,000 dwt, with seven between 60,000 dwt and 99,000 dwt, with the balance between 100,000 Revenue 60.1 66.2 and 165,000 dwt. EBITDA 40.4 37.6 Depreciations and write-downs (16.8) (20.7) Outlook for 2013 Profit/(loss) on sale of vessels etc. (7.5) - Nineteen shuttle tankers are scheduled for deliv- Operating income 16.1 16.9 ery in 2013, of which 15 units are considered firm Share of profit in joint ventures 2.7 - with the balance possibly subject to delay. With oil Finance net (10.8) (11.6) prices continuing at USD 100/ barrel or more in Profit/(loss) before tax 7.9 5.3 2013, an increasing number of new deepwater JL's share of profit/(loss) 8.8 3.7 offshore projects are forecast to be initiated with Invested capital (average) 364.6 464.0 subsequent higher demand for shuttle tankers. Return on invested capital 5.1% 3.6% Average no. of employees 58 126

Figure 20: global shuttle tanker fleet and age profile (beginning of year)

120 13

100 12

80 11 v

60 g 10 40 Average age Avera No. of vessels 9 20

0 8 2011 2012 2013 2014 2015

<<< Fleet <<< Orderbook Average age >>>

Source: Lauritzen Offshore (own research) 42 J. Lauritzen A/S · Annual Report 2012

Finance and investor Relations

Maintaining strong and open relations with bond holdings (during the construction phase of investors and lenders enables JL to benefit from newbuildings). having access to a range of resources to finance • No single bank to contribute more than 25% our business activities. of total debt.

Financing JL’s owned fleet is financed with a mix of debt and Reflecting the fact that our business operations own funds. are capital intensive, the financing for JL’s assets comes from different financial resources and our Our remaining newbuilding program of owned financial policy has three main objectives: vessels is fully financed. At year-end 2012, CAPEX remaining under the newbuilding program • Secure the necessary liquidity. amounted to USD 104m and committed funding • Secure the lowest possible cost of debt capi- totalled USD 63m. The newbuilding program tal taking market terms and conditions into comprises four vessels. consideration. • Maintain financial independency through Debt financing prudent financial risk management and a di- Long-term debt is generally held by J. Lauritzen versified funding base. A/S but in some instances subsidiaries J. Laurit- zen Singapore Pte. Ltd. or Lauritzen Shuttletank- JL’s Board of Directors has approved a financial ers Singapore Pte. Ltd. are borrowers of long-term strategy including a set of guidelines for group debt. solvency ratio, liquidity target and policies for financing debt, including: Bank facilities account for the majority of the debt financing. At year-end 2012, bank facilities (amor- • Group solvency ratio of at least 35% and pref- tizing term loans and revolving facilities) account- erably not less than 40%. ed for 83% of total debt excluding subordinated • Group liquidity (cash and cash equivalents) of loans. Bank facilities are secured by mortgages at least USD 50m plus a buffer to withstand a on the vessels being financed. Of the 83% bank severe crisis. facilities, 21% percentage points were ECA (Ex- • Debt financing for newbuildings to be drawn port Credit Agency) backed facilities at year-end down at or after delivery of vessels. 2012, cf. Figure 21. • CAPEX to be paid out of the Group’s cash J. Lauritzen A/S · Annual Report 2012 43

Existing term loans (amortizing loans with a bal- 50m) and JL’s consolidated working capital ratio loon payment at maturity) mature in 2016 and (to be 1:1 or better). 2017. Existing ECA backed term loans (fully amortizing loans) mature in 2021 and 2022. Revolving JL was in compliance with all bank loan and bond facilities (partially amortizing credits with a bal- debt covenants at year-end 2012. loon payment at maturity) mature between 2014 and 2017. At year-end 2012, corporate bonds accounted for a further 17% of outstanding debt excluding sub- JL’s existing bank facilities include covenants on ordinated loans. Issued bonds include financial the mortgaged vessels relevant to the ordinary covenants on JL’s consolidated solvency ratio conduct of business. Bank facilities also include (minimum 30%) and consolidated liquidity (mini- minimum value requirements (e.g. minimum re- mum USD 50m). quirements relating to a ratio between the fair market value of the security and outstanding debt Our strategy is to have approximately USD 300m in the particular facility) between 100% and 130%. or the equivalent in other currencies in outstand- Finally, facilities include financial covenants on ing debt on a rolling basis, based on corporate JL’s value-adjusted (taking e.g. vessels at broker bond issuance. The first step was taken in May valuation) consolidated solvency ratio (minimum 2010 with the issuance of NOK 700m in corporate 30%), JL’s consolidated liquidity (minimum USD bonds (ISIN NO0010572381) with maturity in May 2015. The next step was taken in October 2012 when JL issued NOK 500m in a new corporate Figure 21: Forecast outstanding debt year-end usdm bond (ISIN NO0010661846) with maturity in Oc- tober 2017, cf. Table 5. We expect to continue to 1500 issue additional corporate bonds in the future. 1250 1000 No bank or bond debt requires refinancing until 750 mid-2014, cf. figure 22. 500 250 0 2013 2014 2015 2016 2017

Term Loan Term Loan ECA backed Revolving Subordinated Loan Bond Unsecured

table 5: JL’s corporate bond issue

Issuer J. Lauritzen A/S J. Lauritzen A/S

ISIN NO 001 0572381 NO 0010 661846 Type Senior Unsecured Bond Senior Unsecured Bond Coupon p.a. Fixed 10.5% Floating rate 8.25% + NIBOR 3mths Issue date 05 May 2010 24 October 2012 Maturity date 05 May 2015 24 October 2017 Amount NOK 700m NOK 500m Interest payment Annual Quarterly Listing Oslo Stock Exchange Oslo Stock Exchange (As from 16 January 2013) 44 J. Lauritzen A/S · Annual Report 2012

Equity JL is a private (non-listed) company owned by the Lauritzen Foundation. As a non-listed company JL has no direct market access to equity.

However, JL benefits from having an owner with a long-term vested interest in shipping and we have received the following subordinated loans from our owner:

• DKK 600m on 1 April 2009 with an original maturity on 1 April 2014. However, in May 2012 the owner agreed to extend the maturity on this subordinated loan by an additional eight years to 1 April 2022. • DKK 250m on 7 January 2010 with maturity on 31 January 2015.

Early 2013, the Lauritzen Foundation decided to convert the two subordinated loans into equity. At year-end 2012, the loans including accrued interest amounted to a total of DKK 903.1m, equivalent to USD 159,6m. The conversion increases JL’s solvency ratio from 37% to 44%.

Joint ventures and part-ownership JL considers joint-ventures an attractive way to providing access to new markets or increasing our fleet with a view to gaining economies of scale in particular markets or market segments.

Some of the Handysize bulk carrier vessels operated by Lauritzen Bulkers are part-owned vessels,

Figure 22: repayment profile of outstanding debt

400 350 300 250 200 150 100 50 0 2013 2014 2015 2016 2017 Bullit Subordinated loan Bullit Bond Bullit Term Loan Repayment

Note: Bullet payments on existing bank facilities are normally refinanced on or before maturity by way of pledging the particular financed vessels in a new facility and using proceeds to re- deem the existing facility. J. Lauritzen A/S · Annual Report 2012 45

with Lauritzen Bulkers having co-ownership. Sim- ilarly a part of Lauritzen Kosan’s fleet of Ethylene STOCK EXCHANGE gas carriers is co-owned together with a joint ven- ANNOUNCEMENTS ture partner and operated by Lauritzen Kosan. 2012 In 2012, Lauritzen Offshore formed the AXIS Off- shore joint venture together with our Norwegian The following Stock Exchange announcements partner, HitecVision, with a view to growing its were made in calendar 2012 via Oslo Stock Ex- presence in the offshore accommodation and change. support vessel segment. Announcement No. 1: Investor Relations Financial report for 2011, 23 February 2012 As mentioned above, an integral part of our financial strategy is to be a recurring issuer of corpo- Announcement No. 2: rate bonds and since May 2010, JL has had cor- Further strengthening of funding and revised porate bonds listed on Oslo Stock Exchange. outlook for 2012, 10 May 2012 Relations with the investor community are thus important for us. Announcement No. 3: J. Lauritzen establishes joint venture with JL’s objective is for the market price of securities HitecVision, 4 July 2012 we issue to fairly reflect the JL Group’s financial performance, our actual and forecast ability to Announcement No. 4: create value and our ability to repay our obliga- Interim financial report for the first half of 2012, tions as they fall due. In doing so, we strive to pro- 14 August 2012 vide timely, precise and relevant information on JL Group strategy, our business, results and expecta- Announcement No. 5 : tions and other matters which affect the percep- J. Lauritzen contemplates bond issue, 10 tion and assessment of the securities we issue. October 2012

JL seeks to maintain an open dialogue with cur- Announcement No. 6: rent and potential investors, analysts and other J. Lauritzen successfully completes NOK 500m market professionals and to provide them with bond issue, 11 October 2012 easy and equal access to information from us. Announcement No. 7: JL held several investor meetings and conference Kastrup-Nielsen will take over as CEO after calls in 2012. Presentations from these meetings Janholt in February 2013, 14 November 2012 are available on our website where all announcements and financial reports issued by JL are also Announcement No. 8 : available. Investor relations activities in 2012 fo- Lower EBITDA and write-down as result of cused on keeping the investor community updat- impairment, 21 December 2012 ed on developments at JL but also on exploring our opportunities for issuing further corporate bonds. On the back of these efforts, we successfully launched and sold a second corporate bond in October 2012.

In order to align JL’s financial reporting with the standards of other issuers, we will begin releasing quarterly interim financial reports from Q1/2013.

Future investor relations activities are expected to remain at the same level as in 2012. 46 J. Lauritzen A/S · Annual Report 2012

risk management

As a cyclical, global industry, shipping is exposed based on how likely they are to occur and their to a large number of diverse risk factors with the potential impact. The Group and individual busi- potential to heavily impact on the way business is ness units also have procedures in place to ensure conducted. consistent day-to-day risk management.

The purpose of risk management is to ensure that Business risks risks affecting JL’s operations are identified, moni- Business risks relate primarily to volatility in tored and dealt with according to the risk toler- freight rates and asset values. Global economic ance set for each type of risk. cycles and economic growth are key drivers for all shipping markets as world trade and seaborne JL as a Group has identified, monitors and man- trade both depend on economic growth. Further, ages four main types of risk: Business Risks (e.g. the demand for seaborne transport depends on freight rates, fuel oil prices, asset values and oper- the geographical location of production com- ating costs), Financial Risks (e.g. interest rates, pared to where the goods are being used. JL’s currencies and liquidity), Credit Risks (e.g. credit four business units all have market-specific de- rating of counterparties) and Operational Risks mand drivers and are responsible for identifying (e.g. safety, insurance, IT and piracy). Risk man- and monitoring risks relating to their individual agement is an integral part of JL’s corporate gov- markets. ernance, see p. 50-53. Volatility in JL’s earnings is in part managed by op- As a shipping company we create value by taking erating a diversified business portfolio and differ- calculated risks relating to our core businesses. ent vessel segments within the individual busi- For operational risks, our risk tolerance is in prin- ness units and in part by securing a deliberate ciple zero and risks relating to operations, safety, combination of open and covered vessel days (in- environment and IT systems are reduced as much cluding FFAs). as possible. We have a low risk tolerance related for financial risks and these are managed closely Instructions regarding charter obligations are de- and minimised in order to support our strategy. fined by JL’s Board of Directors.

Policies on risk management and risk limitation Some segments are characterised by long-term are approved by the Board of Directors. Key risk contracts whereas others are characterized by an- factors both at Group level and for individual busi- nual contracts and a high level of repeat clients. ness units are regularly assessed and prioritised Long-term period charters and very long cargo J. Lauritzen A/S · Annual Report 2012 47

contracts are approved by the Board of Directors. employed either in the spot market, re-let or on We constantly monitor market trends and adjust time-charter or employed under COA with BAF our coverage to market expectations on an ongo- and hence bunker oil price risk is limited. ing basis, cf. Figure 23. Reputational risk JL operates a young, cost-efficient, diversified JL enjoys strong brand recognition and loyalty fleet comprising owned and part-owned as well and has for many years been a quality shipowner as time-chartered and pool vessels, giving us a with high standards in all aspects of safety and high degree of flexibility in adjusting the fleet to corporate governance. However, any incident or market changes. accident could have an impact on the company to the detriment of our image and brand loyalty. Risks associated with fluctuations in asset values Guarding against this type of risk is difficult and are assessed inter alia by using a model incorpo- can only be achieved by extensive preventive rating forecast economic/physical service lives, work and complete transparency should an inci- shipping cycles and average costs per fleet unit. dent or accident nevertheless occur.

Due to a significant drop in vessel values in the Financial risks first half of 2012, cash totallingU SD 22m was Financial risks relate to capital management risks, paid into pledged accounts to support fulfilment see the chapter Finance and Investor relations on of minimum value clauses embedded in financing p. 42ff and to the financial markets in general (cur- facilities. A further USD 8m cash is expected to be rency exchange rates and interest rates). pledged during Q1/2013. Should vessel values drop further a 10% during 2013, JL will be expect- Currency risk ed to pay an additional USD 8m into pledged ac- JL’s operating and reporting currency is USD and counts. thus all amounts are recorded and reported in USD. Matching income and expenses and assets Business strategies, comprising policies for con- and liabilities minimises the net currency risk, tract coverage by vessel segments and overall leaving net positions to be focused on. limits for off-balance sheet exposure (such as chartered tonnage) are approved by JL’s Board of Currency exposure relates to our operational, fi- Directors and reporting on these is an integral part nancial and investment cash flows. of our reporting routines. The most important non-USD operating cost cur- Bunker oil price risk rency is DKK arising mainly from head office costs Bunker oil is a significant cost element for JL, al- and Danish crew expenses. Currency risk from though oil price risk only relates to contracted non-USD investments in ships relates to JPY. Cur- cargo volumes not covered by BAF (Bunker Ad- rency risk from non-USD interest bearing debt re- justment Factor). At present, most of the fleet is lates to JPY (USD 86.1m), NOK (USD 212.5m) and DKK (USD 161.8m).

Figure 23: Coverage 2013 Our policy is to use derivative instruments to hedge currency risks relating to net non-USD 100% cash flows from operating activities, investments

75% and financing. General hedging policy is approved by the Board of Directors. 50% Interest rate risks 25% Part of JL’s loan portfolio is subject to floating interest rates, meaning that we are exposed to fluc- 0% tuations in these. LPG ysize nkers ymax nkers esize e LPG P LPG P d R a a d p F/ S/ Ca

Han Our policy is to hedge risks associated with Han

Ethylen changes in interest rates to limit the financial ef- Shuttle T Product T 48 J. Lauritzen A/S · Annual Report 2012

fects of adverse changes in interest rates by con- Safety verting variable interest rates to fixed interest Casualties from ship operations can have serious rates. Net interest rate risk may be hedged via for- consequences and so merchant shipping is one of ward rate agreements, interest rate swaps and the most heavily regulated industries in the world related instruments if felt advantageous. General and was among the first to adopt and widely im- hedging policy is approved by the Board of Direc- plement international safety standards. Further, tors. many clients have implemented additional requirements relating to safety, environmental pro- At year-end 2012, 59% of JL’s debt was in fixed tection, etc. rate loans (47% at year-end 2011). Any accident could have serious consequences During 2012, we further increased lines relating to for our crews or personnel, the environment and derivatives with financial counterparties, thus sig- our financial position due to personel injury, loss nificantly reducing the risk of margin calls. of income, repair costs, claims and damages and consequential loss of client satisfaction. Credit risk Credit risk is the risk of incurring financial loss if a JL recognises the risks and potential hazards in- client or a counterpart fails to fulfil its contractual volved in owning, operating and managing a obligations. large, diversified fleet of ships worldwide. One major prerequisite for handling these risks is to JL rates clients for creditworthiness based on his- ensure that all ships under our control comply torical trading and payment records, input from with comprehensive internal management sys- rating agencies as well as industry knowledge tems that are in line with or exceed the require- and client reputation. Large counterparties are ments of the International Safety Management monitored and rated, with fixed exposure limits. (ISM) code. Management systems and reporting Further, clients and counterparties are only ac- practices are regularly revised so as to communi- cepted when fulfilling general requirements. In cate best practice across the fleet, thus avoiding certain cases contracts are guaranteed by parent or minimizing the risk of incidents, accidents and companies or the like. time loss.

Large contracts and long-term commitments are Ongoing training of crews is the key to reducing reviewed and approved by the Executive Manage- risks relating to ship and cargo handling opera- ment and in certain cases by the Board of Direc- tions. tors. Piracy and violent crime On a Group basis, our ten largest clients account- The fight against piracy, violent crime and associ- ed for 20.5% of total revenues in 2012 (22.8% in ated risks continue to be at the top of the global 2011). shipping agenda, hence also for JL.

Risks relating to financial counterparties, financial The risk to our crews and clients’ cargo due to pi- instruments, bonds and cash funds are minimised racy or violent crime-related activity in certain by trading only with financial institutions with a parts of the world has our strictest attention. We long-term investment grade credit rating from adhere to recommendations and best manage- Moody’s and by defined limits on deposits for ment practices from relevant national and interna- each financial partner. tional bodies as set out in our corporate security guidelines. Please see Note 16 of the financial statements for further details on financial and credit risks. JL supports the use and dispatch of armed security teams aboard our vessels. The necessity for Operational risks engaging armed security teams on vessels oper- Operational risks refer to potential losses resulting ating in high risk regions is assessed on the basis from inadequate systems, accidents and piracy. of voyage-specific risk assessments. This is sup- J. Lauritzen A/S · Annual Report 2012 49

ported by industry anti-piracy measures aboard (best management practices, BMP4) and close monitoring by technical management and by military forces providing intelligence relevant to our vessels and military escorts.

Our efforts are strengthened by working closely with external anti-piracy professionals for assessment of current risk trends.

JL ensures that in the unfortunate case of a piracy-related incident, a team of professional crisis management psychologists will be assisting crew, family and relatives in order to provide the coun- selling required.

Insurance An insurance policy has been adopted with the aim of reducing the financial implications of incidents and casualties.

JL’s insurances cover our assets, our hired and operated fleet and non-marine risks. As a general rule, insurances are always taken out with first class international insurance companies and they are always taken out with a certain financial safety margin to avoid any serious consequential impact of an incident or casualty on our financial status.

IT systems IT is critical for the conduct of our business and thus it is imperative that our IT systems are available round-the-clock and are accessible worldwide.

IT infrastructure and application management is outsourced to a third party provider. Our internal IT organization has the authority, the capabilities and capacity to manage the relationship in order to ensure the quality and availability of the IT services delivered by the third party service provider.

Redundant systems and duplicate infrastructure are in place and systems are tested annually to ensure that they can be restored within pre-defined time limits.

The company’s IT security policy defines the overall system, platform and infrastructure requirements and defines the framework for user behav- iour and access to systems. 50 J. Lauritzen A/S · Annual Report 2012

Corporate Governance

JL’s approach and day-to-day work with the COMMITMENT Group’s corporate governance is based on the The Group’s business foundation builds on JL’s three core pillars of commitment, governance and core values of competence, respect, entrepreneur- control. ship, accountability, team spirit and enthusiasm and being owned by a foundation that emphasis- JL’s corporate governance procedures are based es promoting and developing the Danish shipping on the Danish Companies Act, the fundamental industry in general and supporting charitable in- principles and recommendations of the Danish stitutions, JL has always focused on long-term Committee on Corporate Governance, the com- value creation. pany’s Articles of Association, the Board of Direc- tors’ Rules of Procedure and its guidelines to the Our business foundation makes us agile and en- Executive Management. The procedures reflect sures our ability to adapt to increasing regulation. the fact that JL is a private (non-listed) company We thus continually increase our transparency with a sole owner but with several bond holders. whilst engaging with a growing number of stakeholders. Please visit the Group’s corporate website to see the Group’s statutory report on Corporate GOVERNANCE Governance for the financial year at http://www.j- Ownership lauritzen.com/upload/jl_answer _cguk_2012.pdf. JL is a private (non-listed) company incorporated in Denmark and is owned by the Lauritzen Foun-

“As the sole owner of J. Lauritzen, we have supported the development of the business platform that has taken place over the past couple of years, and when the global crisis is over we see JL as a strong contender to further develop its market presence”

Jens Ditlev Lauritzen, Chairman, Lauritzen Foundation.

COMMITMENT GOVERNANCE CONTROL

OWNERS CORE VALUES THE LAURITZEN FOUNDATION FINANCIAL MANAGEMENT

BOARD OF DIRECTORS GLOBAL COMPACT and committees RISK MANAGEMENT

EXECUTIVE MANAGEMENT TRANSPARENCY INTERNAL CONTROL EXECUTIVE COMMITTEE

EXTERNAL GUIDELINES & ORGANISATION AUDIT PROCESSES REGULATIONS J. Lauritzen A/S · Annual Report 2012 51

dation. According to its charter, the Foundation is strongly committed to developing the shipping LAURITZEN industry. Further, the Foundation’s strong values FOUNDATION and heritage provide daily inspiration and support for JL’s market profile, with our focus on long- J. Lauritzen A/S was founded in 1884 and has term value creation combined with the agility to been a leading provider of ocean transport for meet outside demands and developments. more than 125 years. The Lauritzen Foundation was established in 1945 and since then has had The annual general meeting was in 2012 held on full ownership of JL. The Lauritzen Foundation is 27 March. a commercial foundation and as such is a self- governing institution in Danish law and is regu- Management structure lated by the Danish Act on Commercial Founda- JL has a two-tier management structure consist- tions. The Foundation is also overseen by the ing of two separate bodies; a non-executive Board Danish Ministry of Justice and the Danish Minis- of Directors and an Executive Management. The try of Business and Growth. Board of Directors is the central, supreme governing body. Day-to-day management is conducted The Lauritzen Foundation supports JL’s prudent by the Executive Management in line with the dividend policy, taking account of the continued rules and procedures laid down by the Board of existence and development of JL. Further, its Directors. policy is to ensure the independence of the companies it owns. Board of Directors The core task of the Board of Directors’ is to en- In addition to its ownership of JL and its control- sure that JL’s overall business strategy is consis- ling interest in DFDS A/S (36% holding), the Lau- tent and the Group’s capital structure is appropri- ritzen Foundation has holdings via wholly-owned ate. Focus is on risk management and internal LF Investment ApS (100% holding) in the oil anal- control and the Board of Directors ensures that an ysis, measuring equipment, software, biotech- annual strategic plan and budget are drawn up nology and real estate sectors. and approved and that monthly and quarterly reports are submitted.

In 2012 the Board met eight times, including an annual mid-year strategy meeting. Between meetings, recommendations were submitted to The Board of Directors consists of eight members, the Board for written resolution. five elected by the general meeting and three elected by the employees. The members elected The Board of Directors is supported by two per- by the general meeting serve for one year and manent committees: An Audit Committee and a may stand for re-election. In 2012 all five mem- Nomination and Remuneration Committee. bers were re-elected at the general meeting.

Pursuant to the Danish Companies Act, three board members are elected by the employees for a period of four years, last election was in 2009. The Lauritzen Foundation

At the turn of 2012, the average length of service of the Board of Directors was eight years and their average age was 55. Three of the board members LF Investment ApS J. Lauritzen A/S DFDS A/S 100 % 100% 36% (Niels Heering, Peter Poul Lauritzen Bay and Mari- anne Wiinholt) elected by the general meeting are independent, as defined in the recommendations from the Danish Committee on Corporate Gover- Lauritzen Lauritzen Lauritzen Lauritzen nance. Bulkers Kosan Tankers Offshore 52 J. Lauritzen A/S · Annual Report 2012

The Board is broadly composed of members with The Executive Committee functions as the coordi- diverse, extensive experience, knowledge and nating forum for the day-to-day management of know-how in relation to the global shipping indus- the JL Group. try, international leadership, finance and strategy development. The Executive Committee consists of Executive Management together with Peter Borup (Presi- Committee work in 2012 dent, Lauritzen Bulkers as from 1 February 2013), JL’s Audit Committee held six meetings in 2012 Thomas Wøidemann (President, Lauritzen Kosan), and supported the Board of Directors in monitor- Erik Donner (President, Lauritzen Tankers and ing the financial controls and reporting process, Lauritzen Offshore), Erik Bierre (Senior Vice Presi- risk management systems and the audit process. dent, Business Control) and John M. Jørgensen (Senior Vice President, Treasury). The Nomination and Remuneration Committee supports the Board of Directors in the ongoing Increased focus on diversity process of establishing and maintaining appropri- JL has signed Operation Chain Reaction, a Danish ate succession plans for the Board of Directors government initiative that strives to motivate and Executive Management as well as ensuring companies to increase diversity with the focus on that the Group has a market conform remunera- gender. tion policy. The committee held two meetings in 2012. A policy and action plan for diversity was adopted in 2012 and applies for all management levels. JL Executive Management defines diversity in terms of gender, cultural The Executive Management is appointed by the width, extensive experience and new inspiration. Board of Directors and consists of Torben Janholt, President & CEO, Birgit Aagaard-Svendsen, EVP The Board composition was unchanged in 2012 & CFO and Jan Kastrup-Nielsen, EVP & COO (as and thus the diversity profile of the Board mem- per 26 February 2013, appointed President & CEO bers elected by the annual general meeting re- of JL). Extraordinary or major dispositions may mained with 20% female and 40% being citizens only be implemented by the Executive Manage- from elsewhere than Denmark. ment on the basis of specific authorization granted by the Board. J. Lauritzen A/S · Annual Report 2012 53

In 2012, JL succeeded in strengthening the diver- Operational efficiency is supported by centralized, sity at management level both at head office and shared corporate services such as business con- in Singapore in corporate positions, chartering trol, human resources, IT, legal and insurance, and operation. procurement, cash management and corporate communication. For additional information on nationality, age profile and the composition of the executive manage- IT infrastructure and application management, ment, please visit our website at www. j-lauritzen. technical management in some business areas com. and services relating to control functions have been outsourced to third party providers, which Principles of remuneration are selected on the basis of thorough due dili- During 2012, JL’s policy and principles for remu- gence. neration were updated and disclosed on the Group’s website. The principles of remuneration A whistleblower system was implemented in include the Board of Directors, Executive Man- 2010. So far, no incidents have been reported. agement and employees in JL in general. Remu- neration in JL reflects personal performance and Financial Management, reporting and internal achievements as well as market conditions in control comparable companies. JL’s financial management comprises long-term financial projections and rolling two-year fore- Members of the Board of Directors receive fixed casts followed up by quarterly and monthly re- compensation at a level which reflects the scope porting. Long-term projections are revised at least and character of duties as a Director and is on par twice a year or whenever required. During 2012, with fees in comparable companies. Members of forecasts were revised several times. the Audit Committee and the Nomination and Re- muneration Committee receive additional fees. Effective, transparent reporting requires well-de- No pension contributions are payable on Board fined levels of authorisation, the segregation of member fees and neither are board members cov- duties and common adopted reporting structures. ered by incentive programmes. Fees are disclosed The Group’s IT-systems promote requisite knowl- in JL’s annual report, see p. 60-61. edge-sharing and transparency.

For additional information on JL’s principles of re- Statutory reporting and internal management remuneration, please visit our website at www.j- porting are based on common policies, shared lauritzen.com. databases and a standardised reporting system.

CONTROL JL’s Business Control is responsible for the An important part of JL’s approach and day-to- Group’s financial management, reporting and the day work with governance relates to risk manage- internal financial control of business units and ment, financial control and management and au- subsidiaries. dit processes. The Board of Directors and Executive Management routinely defines and re- views policies and control procedures to support the business, risk management, financial management and reporting and benchmarks these against generally accepted international practice.

Activities relating to day-to-day business are dele- gated insofar as possible to individual business units, subject to well-defined financial and risk limits. 54 J. Lauritzen A/S · Annual Report 2012

Corporate Responsibility

Our focus on Corporate Responsibility (CR) re- tal and ethical business conduct. The policy has flects the Group’s long-term business fundamen- been approved by JL’s Board of Directors and Ex- tals and gives us the opportunities to work closer ecutive Management. with our stakeholders - our owner, suppliers, customers and other business partners. During 2012, CR strategy process we succeeded in further strengthening and for- Our CR work continued in 2012 with the aim of malising the Group’s CR efforts both within the aligning and prioritising existing and future CR ini- Group and in industry collaborations. tiatives such as responsible procurement and an anti-corruption compliance programme. This was Policy commitment supported by a materiality assessment process The Group’s CR policy was developed by JL’s in- that started in 2011 and has served as a tool for terdisciplinary CR committee in 2012, and is guiding us in prioritising our focus areas. based on the Group’s core values and internation- ally recognized principles for social, environmen-

“An essential part of our corporate responsibility strategy is to seek industry collaboration on some of the key industry challenges we meet”

Jan Kastrup-Nielsen, EVP & COO.

Materiality assement Process

2011 2012-2015 Signatory to UN Global Compact Strategy and reporting focus UN Global Compact gap analysis conducted Corporate level Internal workshop on risk and opportunities related to corporate responsibility Human Rights Labour conditions UN’s endorsement of the UN Guiding Diversity principles on Business and Human Rights Security Climate and environment 2012 Anti-Corruption Second assessments with internal stake- Responsible procurement holders Community engagement projects

JL’s corporate responsibility focus presented and approved at the Board’s strategy Business unit level seminar Health and safety Executive Committee discussed specific Security projects Environment Business conduct Increased reporting requirements (Danish Financial Statements Act, §99a) J. Lauritzen A/S · Annual Report 2012 55

Key initiatives in 2012 The following main initiatives and actions were taken during the year:

• Completion of a responsible procurement programme together with another Danish shipowner. • As part of our anti-corruption compliance programme, we conducted awareness ses- sions and published internal information material. • Ongoing participation in the Maritime Anti- Corruption Network. • Implementation of our Group Energy Efficien- cy Project, which aims to enhance fuel-efficiency and cut emissions whilst achieving savings on costs. • Introduction of the Greenhouse Gas Protocol (GHGP), the most widely-used international environmental accounting tool for greenhouse gas emissions. • Climate partnership with DONG Energy for our head office in Copenhagen.

Additional information Read more on our CR efforts in the Group’s statutory Corporate Responsibility report which has been prepared in accordance with the Danish Fi- nancial Statements Act (§99a) and the UN Global Compact’s requirements for communication on progress on http://www.j-lauritzen.com/upload/ jlcr_report_2012.pdf. 56 J. Lauritzen A/S · Annual Report 2012

Organisation and People

Ambitious and competent employees, who re- difficulties, the applicants must also show sound spect and adhere to the business ethics and cul- academic results, be active in community service tural heritage on which JL is founded, are playing or other voluntary activities with a positive social a more vital role than ever and are essential for our impact. continuing growth and development. During 2012, JL employees had seats on national Competency development and international committees and advisory During the year, JL’s first candidates embarked on boards, where they were able to influence their a two-year commercial shipping programme de- fields of interest. JL employees were invited to veloped in conjunction with other major Danish speak at conferences in Denmark and abroad, for shipping companies and the Danish Shipowners’ example on implementing corporate strategy, fi- Association. The programme is conducted in Eng- nancial management, governance and CR in the lish which makes it possible to include employees maritime industry, LNG as alternative marine fuel from our overseas offices. and industry-specific topics.

The very firstN anyang Technological University Recruitments student who is studying in the maritime pro- The number of recruitments was at a modest level gramme of NTU in Singapore, received the schol- in 2012, and the majority concerned replace- arship established last year by the Lauritzen Foun- ments of employees who had left either the Dan- dation and J. Lauritzen Singapore. The scholarship ish organisation or one of our overseas offices. JL provides financial support to young talented can- experienced no problems in recruiting well-quali- didates who do not have the funds to complete fied candidates for all vacancies. their studies. Apart from experiencing financial

Ambitious and competent employees, who respect and adhere to the business ethics and cultural heritage on which JL is founded, are playing a more vital role than ever and are essential for our continuing growth and development. J. Lauritzen A/S · Annual Report 2012 57

Employee development At year-end 2012, JL’s total headcount was 1,341 compared to 1,384 in 2011, with a total of 166 working at head office in Copenhagen, 55 in the overseas offices, 4 in site teams, and 1,116 at sea, cf. Figures 24-25.

In 2012, staff turnover was 14.5% compared to 14.3% in 2011. The staff turnover has mainly been caused by employees transferring to Axis Off- shore Pte. Ltd. and a considerably turnover among our student employees in part-time positions.

Average years of service decreased to 9.2 in 2012 compared to 9.3 years in 2011, and average age remained 44.3 years in 2012.

Figure 24: total workforce at 2010-2012 year-end 1,400 1,200 1,000 800 600 400 200 0 2010 2011 2012

Seagoing Head office Overseas offices Site teams

Figure 25: Distribution of workforce year-end 2012

Seagoing Head office Overseas offices Site teams 58 J. Lauritzen A/S · Annual Report 2012

Financial Review

JL’s result was USD (349.7)m compared to USD sets being transferred to Axis Offshore.O ne gas (46.2)m in 2011. The result was significantly im- carrier was also sold with a profit of USD 1.8m. pacted by one-off items with a net effect of USD For comparison, 2011 saw the disposal of three (254.4)m (2011: USD (25.2)m) comprising write- gas carriers and two bulk carriers, including one downs, sale of claims and sale of vessels due to capesize bulk carrier sold due to counterparty de- counterparty defaults or strategic initiatives. Ad- fault, with a net loss of USD (36.2)m. justed for one-off items, JL’s normalized result was USD (95.4)m, down from USD (21.0)m in Depreciation and write-downs totaled USD 2011 cf. Table 6. 250.0m compared to USD 91.2m in 2011. Write- downs on bulk carriers and product tankers The decrease of the normalized result was mainly amounted to USD 148.7m (2011: nil). Deprecia- caused by the weaker bulk markets and income tion was up by USD 10.0m as a result of the ex- lost as a consequence of counterparty defaults. panding fleet of owned vessels.

The same factors also had a significant impact on Share of profit in joint ventures totaled USD (26.2) revenues, but due to an 18% increase of the fleet m, down from USD 4.7m in 2011. The decrease and due to changed employment from time char- was mainly related to bulk joint ventures and ters to cargo contracts and spot trading, revenues write-downs on part-owned vessels. increased from USD 604.3m in 2011 to USD 695.6m in 2012. Net financial costs of USD 59.5m fell from USD 69.2m in 2011 as increasing interest charges on Hire of chartered vessels amounted to USD at-delivery financing of newbuildings were off-set 266.1m, up from USD 229.6m in 2011 mainly by increased currency exchange rate net gains caused by an increasing fleet of time-chartered and by costs for refinancing in 2011 not repeated bulk carriers. in 2012.

Operating costs for owned and bareboat char- Result before tax was USD (349.2)m, down from tered vessels totaled USD 62.1m, up from USD USD (45.9)m in 2011. Income tax amounted to 54.4m in 2011 due to delivery of newbuildings USD 0.8m down from USD 1.9m in 2011. during 2011 and 2012. The result of USD (348.4)m was considerably be- Other operating costs including bunkers, port ex- low our expectations at the beginning of the year penditures and other voyage-related costs but in line with expectations stated in our stock amounted to USD 171.5m compared to USD exchange announcement to Oslo Børs in Decem- 68.8m in 2011 reflecting the increasing fleet and ber 2012. The result is regarded as very unsatis- the changed employment pattern. factory.

Office and fleet staff costs and other sales and ad- BALANCE SHEET ministrative costs totaled USD 120.9m, down At year-end 2012, total assets amounted to USD from USD 122.3m in 2011 mainly due to transfer 2,315.4m down USD 366.5m on 2011 due to the of staff to the Axis Offshore joint venture. sale of vessels, depreciations and write-downs and transfer of Dan Swift to Axis Offshore, partly EBITDA amounted to USD 88.7m (normalized off-set by investment in newbuildings. USD 72.0m), down from USD 146.0m in 2011 (normalized USD 126.5m). The decrease in nor- The total book value of vessels amounted to USD malized EBITDA related to Lauritzen Bulkers. The 1,701.9m, down USD 266.8m on 2011, whereas other business units reported EBITDA up on 2011. brokers’ valuations totaled USD 1,312.1m. The calculated value in use of the vessels, taking con- In 2012, net losses from the sale of vessels and tract coverage into account, was higher than the other assets totaled USD (102.4)m, mainly related total book value. to the sale of two capesize bulk carriers due to counterparty default, and Dan Swift and other as- Vessels under construction amounted to USD J. Lauritzen A/S · Annual Report 2012 59

39.1m (2% of total assets), down USD 192.9m crease in EBITDA. In 2012 cash flows from invest- from USD 231.9m in 2011 (9% of total assets) due ment activities including cash pledged as security to delivery of newbuildings. for debt amounted to USD (107.9)m, down from USD (329.6)m in 2011 mainly due to decreasing Investments in joint ventures totaled USD 130.2m net investment in vessels. compared to USD 97.6m in 2011. Current receivables including cash pledged as security for debt Cash flows from financing activities (net proceeds and fair value adjustments on FFAs and other fi- from loans) amounted to USD 107.2m compared nancial derivatives amounted to USD 100.1m, to USD 322.9m in 2011. The decrease mainly re- compared to USD 73.7m in 2011. lated to at-delivery financing of vessels, partly off- set by proceeds of USD 87.0m from issuing bonds Total shareholders’ equity was down by USD in 2012. 348.6m at USD 852.4m. Solvency was 37%, down from 45% at the end of 2011. Cash and cash equivalents at year-end amounted to USD 267.0m compared to USD 234.1m at year- At year-end 2012, total liabilities amounted to end 2011. USD 1,462.9m, down USD 17.8m on 2011. Total interest bearing debt decreased to USD 1,375.1m At year-end, financial resources, including com- from USD 1,394.1m in 2011. Other current pay- mitted facilities available upon delivery of vessels, ables including fair value adjustments on FFAs amounted to USD 331.0m, down USD 145.2m and other financial derivatives amounted toU SD compared to year-end 2011. The committed facili- 72.7m (2011: USD 68.2m). ties available upon delivery of vessels decreased due to post-delivery draw downs in 2012. CASH FLOW STATEMENT Cash flow from operations totaled USD 34.1m, down from USD 85.8m in 2011 reflecting the de-

table 6: normalised result usdm

INCOME STATEMENT - CONDENSED Actual One-off items Normalised Note 2012 2011 2012 2011 2012 2011

Revenue 1) 695.6 604.3 16.6 17.0 679.0 587.3 Other operating income 13.8 16.8 - - 13.8 16.8 Costs 2) (620.6) (475.1) 0.1 2.5 (620.7) (477.6) Profit before depreciation (EBITDA) 88.7 146.0 16.7 19.5 72.0 126.5 Profit/(loss) on sale of assets 3) (102.4) (36.2) (104.1) (44.7) 1.8 8.5 Depreciations and write-downs 4) (250.0) (91.2) (148.7) - (101.2) (91.2) Operating income (263.6) 18.5 (236.1) (25.2) (27.5) 43.7 Share of profit in joint ventures 5) (26.2) 4.7 (18.2) - (8.0) 4.7 Net financial items (59.5) (69.2) - - (59.5) (69.2) Profit/(loss) before tax (349.2) (45.9) (254.4) (25.2) (94.9) (20.8) Income tax 0.8 1.9 - - 0.8 1.9 Profit/(loss) for the year (348.4) (44.0) (254.4) (25.2) (94.1) (18.8) Non-controlling interest's share of profit/(loss) (1.3) (2.2) - - (1.3) (2.2) The J. Lauritzen Group's share of profit/(loss) (349.7) (46.2) (254.4) (25.2) (95.4) (21.0)

One-off items include: 1) Proceeds from sale of claims and settlements received 2) Use of provisions for onerous charter contracts 3) Sale of vessels as a consequence of counterparty defaults or strategic initiatives 4) Write-downs on vessels and vessels under construction due to impairment 5) Write-downs on vessels owned by joint ventures due to impairment 60 J. Lauritzen A/S · Annual Report 2012

Board of Directors

CHAIRMAN BOARD MEMBER BENT ØSTERGAARD NIELS HEERING Member since 2003 // Remuneration: DKK 850,000 Member since 2001 // Remuneration: DKK 450,000 Chairman of the Nomination and Remuneration Committee Chairman of the Audit Committee Member of the Nomination and Remuneration Committee President, Chairman of the Board, partner LF Investment ApS & Lauritzen Fonden Gorrissen Federspiel Chairman of the Board of Directors of: Chairman of the Board of Directors of: DFDS A/S Jeudan A/S Kayxo A/S NTR Holding A/S (+subsidiary company) Frederikshavn Maritime Erhvervspark A/S Ellos A/S NanoNord A/S Thrane & Thrane A/S Cantion A/S Helgstrand Dressage A/S Board member of: Nesdu A/S Comenxa A/S Stæhr Holding A/S (+ subsidiary company) Desmi A/S Stæhr Invest II A/S Mama Mia Holding A/S Civ. Ing. N.T. Rasmussens Fond Meabco A/S Board member of: Royal Arctic Line A/S Scandinavian Private Equity Partners A/S With Fonden Ole Mathiesen A/S Durisol UK Henning Stæhr A/S 15. juni Fonden (Vice Chairman) Lise og Valdemar Kählers Familiefond Director of CCKN Holding ApS (+ two subsidiaries)

VICE CHAIRMAN INGAR SKAUG Member since 1998 // Remuneration: DKK 500,000 Member of the Audit Committee Member of the Nomination and Remuneration Committee

Chairman of the Board of Directors of: BOARD MEMBER PETER POUL LAURITZEN BAY Bery Maritime A/S Member since 2003 // Remuneration: DKK 300,000 Ragni Invest A/S Member of the Audit Committee Center for Creative Leadership Board member of: Management Consultant Berg-Hansen Reisebureau AS Accenture DFDS A/S Miros Petroleum Geo-Services Performance Leadership AS J. Lauritzen A/S · Annual Report 2012 61

BOARD MEMBER BOARD MEMBER MARIANNE WIINHOLT SØREN BERG* Member since June 2011 // Remuneration: DKK 250,000 Member since 2005 // Remuneration: DKK 250,000

Senior Vice President/Head of Corporate Project Manager, Lauritzen Kosan A/S Finance, DONG Energy A/S Board member of: Board member of: De Forenede Sejlskibe KNI A/S, DK-3911 Sisimiut, Greenland

BOARD MEMBER BOARD MEMBER ULRIK DANSTRØM* PER GOMMESEN* Member since 2009 // Remuneration: DKK 250,000 Member since 2009 // Remuneration: DKK 250,000

Vice President, Lauritzen Bulkers A/S Captain, Lauritzen Offshore Services A/S

Resigned as of 29 January 2013

AUDIT COMMITTEE NOMINATION & Niels Heering (Chairman) REMUNERATION COMMITTEE Ingar Skaug (Member) Bent Østergaard (Chairman) Peter Poul Lauritzen Bay (Member) Ingar Skaug (Member) Niels Heering (Member)

*Elected by the employees 62 J. Lauritzen A/S · Annual Report 2012

mANAGEMENT

EXECUTIVE MANAGEMENT & EXECUTIVE COMMITTEE

Torben Janholt Birgit Aagaard-Svendsen President & CEO Executive Vice President & CFO

Board member of: Chairman of the Board of Directors of: Danish Shipowners’ Association (DSA) Committee on Corporate Governance (Komitéen (Chairman of DSA 2005-09) for god Selskabsledelse) A/S United Shipping & Trading Ltd Danish Society for Education and Business Post Norden AB (DSEB) European Community Shipowners’ Associations (ECSA) Board member of: Metroselskabet I/S President of Lauritzen Bulkers from July 2012 through The West of England Ship Owners January 2013 Mutual Insurance Association (Luxembourg) Resigned as President and CEO as from 26 February 2013 Jan Kastrup-Nielsen Executive Vice President & COO

President and CEO as from 26 February 2013

OTHER MEMBERS OF EXECUTIVE COMMITTEE

PETER BORUP* Erik Bierre President - Lauritzen Bulkers A/S Senior Vice President - J. Lauritzen A/S Group Business Control Thomas Wøidemann President - Lauritzen Kosan A/S John Jørgensen Senior Vice President - J. Lauritzen A/S Erik Donner Group Treasury President - Lauritzen Tankers A/S & Lauritzen Offshore Services A/S** * From 1 February 2013 ** From July 2012 J. Lauritzen A/S · Annual Report 2012 63

From left: Peter Borup,Torben Janholt, Erik Donner, Jan Kastrup-Nielsen, Thomas Wøidemann, Birgit Aagaard-Svendsen, John Jørgensen and Erik Bierre 64 J. Lauritzen A/S · Annual Report 2012

Accounts

Group accounts

income statement 66 statement of comprehensive income 66 Statement of Financial position 67 equity statement 68 cashflow statement 69 notes 70 Note 1 accounting estimates & judgementS 70 Note 2 segment Information 72 Note 3 Staff costs, office & fleet 74 Note 4 Revenue 74 Note 5 Staff costs office & fleet 74 Note 4 Other sales & aDMINISTRATIVE COSTS 74 nOTE 5 dEPRECIATIONS & WRITE DOWNS 74 nOTE 6 fINANCIAL INCome 74 nOTE 7 fINANCIAL EXPENSES 74 nOTE 8 tAX 74 nOTE 9 vESSELS, PROPERTY & eQUIpment 75 nOTE 10 iNVESTMENTS IN JOINT VENTURES 76 nOTE 11 oTHER RECIEVABLES 76 nOTE 12 pREPAYMENTS 76 nOTE 13 equity 76 nOTE 14 pROVISIONS 76 nOTE 15 lONG-TERM BORROWINGS 77 nOTE 16 fINANCIAL INSTRUMENTS & FINANCIAL RISKS 78 nOTE 17 aDJUSTMENTS TO CASH FLOW 81 nOTE 18 cHANGE IN WORKING CAPITAl 81 nOTE 19 sale of controlling interest in subsidiarieS 81 nOTE 20 mORTAgeS 81 nOTE 21 contingent liabilitieS 81 nOTE 22 Operating leases of vesselS 82 nOTE 23 Contractual commitmentS 83 nOTE 24 Related partieS 83 nOTE 25 Events after the balance sheet 83 nOTE 26 Accounting policieS 83 management statement 100 Independent Auditors’ report 101 J. Lauritzen A/S · Annual Report 2012 65

Parent company accounts

Income Statement 88 statement of comprehensive income 88 Statement of Financial position 89 equity statement 90 cashflow statement 91 Notes 92 nOTe 1 Staff costs 92 Note 2 Other sales & administrative costS 92 Note 3 Financial income 92 Note 4 Financial expenseS 92 Note 5 Tax 92 Note 6 Machinery, tools & Equipment 92 Note 7 Investments in subsidaries 93 Note 8 Other recievableS 93 Note 9 equity 93 Note 10 Long-term borrowingS 94 Note 11 Financial instruments & financial RISKS 95 Note 12 Mortages 98 Note 13 Contingent liabilitieS 98 Note 14 Related partieS 98 Note 15 Events after the year balance sheet 98 Note 16 accounting policieS 98 Note 17 accounting estimates and judgementS 99 management statement 100 Independent Auditors’ report 101

66 J. Lauritzen A/S · Annual Report 2012

group income statement

USD '000 Note 2012 2011

Revenue 2 695,558 604,265 Other operating income 13,825 16,834 Income 709,383 621,099

Hire of chartered vessels (266,067) (229,620) Operating costs of vessels (62,146) (54,390) Other operating costs (171,537) (68,821) Staff costs, office and fleet 3 (98,591) (96,676) Other sales and administrative costs 4 (22,304) (25,586) Costs (620,644) (475,092)

Profit before depreciation (EBITDA) 88,738 146,006 Profit/(loss) on sale of vessels (94,801) (36,251) Profit/(loss) on sale of subsidiaries 19 (7,545) - Profit/(loss) on sale of other assets (11) 3 Depreciations and write-downs 5 (249,958) (91,241) Operating income (263,576) 18,518 Share of profit in joint ventures 10 (26,203) 4,708 Financial income 6 13,749 4,848 Financial expenses 7 (73,201) (74,014) Profit/(loss) before tax (349,230) (45,941) Income tax 8 783 1,926 Profit/(loss) for the year (348,447) (44,015)

Profit attributable to: The J. Lauritzen Group (JL result) (349,743) (46,210) Non-controlling interests 1,296 2,195 (348,447) (44,015)

statement of comprehensive income USD '000 2012 2011

Profit/(loss) for the year (348,447) (44,015)

Other comprehensive income Exchange differences on translating foreign operations 144 4 Fair value adjustment of hedging instruments during the year (9,284) (20,481) Defered gains/(loss) on hedging instruments transferred to financial expenses 11,008 5,594 Fair value adjustment of shares available for sale 818 21,245 Other comprehensive income net of tax 2,685 6,362

Total comprehensive income for the year (345,762) (37,653)

Total comprehensive income attributable to: The J. Lauritzen Group (347,058) (39,848) Non-controlling interests 1,296 2,195 (345,762) (37,653) J. Lauritzen A/S · Annual Report 2012 67

group Statement of Financial position

USD '000 Note 2012 2011

ASSETS Vessels, property and equipment 9 1,752,449 2,214,841 Investments in joint ventures 10 130,247 97,619 Deferred tax assets 8 655 2,707 Shares available for sale 16 26,010 24,788 Receivables from joint ventures 21,985 20,746 Non-current assets 1,931,346 2,360,702

Bunkers 16,755 11,212 Trade receivables 5,250 18,706 Other receivables 11 74,037 29,600 Prepayments 12 19,714 24,578 Current tax receivables 8 1,117 833 Securities 157 2,103 Cash at hand and in bank 267,000 234,132 Current assets 384,030 321,164

Total assets 2,315,376 2,681,865

LIABILITIES Share capital 60,633 60,633 Retained earnings 806,670 1,156,413 Reserves (15,235) (17,920) JL's share of equity 852,069 1,199,126 Non-controlling interests 371 1,956 Equity 13 852,440 1,201,082

Long-term borrowings 15 1,284,709 1,310,843 Non-current liabilities 1,284,709 1,310,843

Current portion of long-term borrowings 15 90,387 83,240 Trade payables 14,740 16,034 Other payables 72,723 68,160 Provisions 14 18 1,037 Prepayments 359 1,469 Current liabilities 178,227 169,940

Total liabilities 1,462,936 1,480,783

Total equity and liabilities 2,315,376 2,681,865 68 J. Lauritzen A/S · Annual Report 2012

group equity statement

Shares Non- Share Hedging available Translation Retained controlling USD '000 capital instrument for sale gain/loss Reserves earnings Total interests Total

Equity 1/1 2011 60,633 (18,505) - (5,777) (24,282) 1,202,623 1,238,974 4,761 1,243,735

Profit/(loss) for the year - - - - - (46,210) (46,210) 2,195 (44,015) Other comprehensive income: Exchange differences on translating foreign - operations - - - 4 4 - 4 - 4 Deferred (gain)/loss on hedging instruments transferred to financial expenses - 5,594 - - 5,594 - 5,594 - 5,594 Fair value adjustment of shares available for sale - - 21,245 21,245 - 21,245 - 21,245 Fair value adjustment of hedging instruments during the period - (20,481) - - (20,481) - (20,481) - (20,481) Total other comprehensive income - (14,886) 21,245 4 6,362 - 6,362 - 6,362 Total comprehensive income - (14,886) 21,245 4 6,362 (46,210) (39,848) 2,195 (37,653) Transactions with owners: Paid dividend ------(5,000) (5,000) Total transactions with owners ------(5,000) (5,000) Equity 31/12 2011 60,633 (33,391) 21,245 (5,773) (17,920) 1,156,413 1,199,126 1,956 1,201,082

Profit/(loss) for the year - - - - - (349,743) (349,743) 1,296 (348,447) Other comprehensive income: Exchange differences on translating foreign operations - - - 144 144 - 144 - 144 Deferred (gain)/loss on hedging instruments transferred to financial expenses - 11,008 - - 11,008 - 11,008 - 11,008

Fair value adjustment of shares available for sale - - 818 - 818 - 818 - 818 Fair value adjustment of hedging instruments during the period - (9,284) - (9,284) - (9,284) - (9,284) Other comprehensive income - 1,724 818 144 2,685 - 2,685 - 2,685 TotalTotal comprehensivecomprehensive incomeincome - 1 1,724 724 818 144 22,685 685 (349(349,743) 743) (347(347,058) 058) 11,296 296 (345(345,762) 762) Transactions with owners: Paid dividend ------(2,881) (2,881) Total transactions with owners ------(2,881) (2,881) Equity 31/12 2012 60,633 (31,668) 22,063 (5,630) (15,235) 806,670 852,068 371 852,440 J. Lauritzen A/S · Annual Report 2012 69

group cash flow statement

USD '000 Note 2012 2011

Operating income (263,576) 18,518 Depreciations and write-downs carried back 5 249,958 91,241 Adjustments 17 101,337 (4,449) Change in working capital 18 3,906 34,994 Cash flow from operations before financial items 91,625 140,303 Ingoing financial payments 3,481 4,848 Outgoing financial payments (63,565) (54,180) Cash flow from ordinary operations 31,541 90,970 Paid corporate tax 8 2,517 (5,220) Cash flow from operating activities 34,059 85,750

Investments in vessels 9 (8,540) (16,907) Payments on vessels under construction 9 (181,090) (417,931) Investments in land and buildings 9 - (234) Investments in machinery and equipment 9 (225) (3,035) Investments in joint ventures 10 (65,055) (1,854) Disposal of Joint ventures 10 175 - Sale of vessels 79,473 32,669 Sale of other non current assets 12 636 Purchase and sales of securities 257 8,217 Bank deposits pledged as security for debt (22,321) 47,680 Sale of controlling interest in subsidiaries 19 83,801 - Dividend received from Joint ventures 10 5,600 21,176 Cash flow from investment activities (107,914) (329,582)

Financial receivables (1,514) (5,163) Instalment on long-term debt (182,584) (379,113) Proceeds from loans 291,249 707,163 Cash flow from financing activities 107,150 322,888

Changes for the year in cash and cash equivalents 33,295 79,056 Cash and cash equivalents at beginning of year 234,132 154,384 Currency adjustments on cash and cash equivalents (427) 692 Cash and cash equivalents at the end of the year 267,000 234,132

Undrawn committed credit facilities at end of year *) 1,009 58,312 Financial resources at the end of the year 268,009 292,444

Committed facilities available upon delivery of vessels 63,000 183,741 Financial resources incl. committed facilities available upon delivery of vessels 331,009 476,185

*) In addition JL has an unsecured overdraft facility of DKK 100m for multi-currency short-term financing needs. 70 J. Lauritzen A/S · Annual Report 2012

group notes

NOTE 1 Accounting estimates and judgments earnings (including charter income, COAs and estimated spot rates for open ship days), operating costs, counterparty risk, the composition The preparation of the financial statements in conformity with IFRS of CGUs and the rate used to discount future cash flows. JL uses its as adopted by EU requires management to make estimates and judg- risk adjusted weighted average cost of capital (real) of 7% (2011: 7%) ments that affect the recognisition and carrying amounts of assets and as the discount rate. liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported performance. Manage- Impairment losses of assets within a CGU are allocated first to the ment bases its estimates and judgments on historical data and other carrying amount of any goodwill allocated to the CGU and then, to assumptions and sources that are considered reasonable. Actual re- the carrying amount of the other assets in the CGU on a pro rata basis sults could differ from those estimates and judgments. to the higher of fair value less cost to sell and value in use. If the total carrying amount of the assets in the CGU still exceeds the value in use JL has identified the following significant accounting estimates and of the CGU, provisions are made for onerous contracts. Provisions are judgments used in the preparation of its consolidated financial state- made to individual contracts, if net present value from an individual ments. contract is negative.

Critical accounting estimates and judgments The current difficult market conditions for bulk carriers and product Estimated useful life and scrap value of vessels: tankers caused declining broker valuations and lower estimated future The estimated useful life and residual value of vessels are assessed income and thus also values in use. The impairment test at the end of annually and adjusted if appropriate. The residual value is based on 2012 resulted in impairment loss totaling USD 166.9m regarding bulk estimates on steel value less costs to scrap. Estimated useful life of carriers (USD 120.3m) and product tankers (USD 46.6m). The write- vessels is 25 years and the useful life of dry dockings range from 30 downs were related to vessels in operation, vessels under construction to 60 months. and vessels owned by joint ventures.

There have been no signicant impact on profit/loss arising from chang- The other CGUs did not show impairment as at 31 December 2012 es in estimated useful life or residual value in 2011 or 2012. Vessels and vessels under construction: Impairment test of non-current assets and charter commitments: The impairment test at the end of 2012 resulted in write-downs on ves- The impairment test is carried out on the lowest level for which there sels and on vessels under construction of USD 148.7m in total (2011: are separately identifiable cash inflows (cash generating units, CGU). USD 0). The carrying amount of vessels and vessels under construc- The CGUs are identical with the reportable segments of JL with the tion is disclosed in note 9. Contractual commitments on newbuilding exception of Lauritzen Bulkers which are divided into two CGUs – large contracts are disclosed in note 23. bulk carriers and small bulk carriers. The CGUs applied in the impairment test for 2012 are identical to those applied for 2011. Vessels partly owned through investments in joint ventures and associates: The material non-current assets included in the CGUs consist of ves- The impairment test at the end of 2012 resulted in write-downs on sels, vessels under construction and investment in joint ventures and vessels partly owned through investments in joint ventures and associ- associates (part owned vessels). Also charter commitments are includ- ates of USD 18.2m (2011: USD 0). The carrying amount of investments ed in the CGUs. Assets which are held for sale are not included in any in joint ventures and associates is disclosed in note 10. CGUs, but are measured at the lower of the carrying amount and fair value less costs to sell. Write-downs on non-current assets are summarized in the table below.

Irrespective of indications of impairment the carrying amounts of Impairment write-downs and reversals: non-current assets and charter commitments related to the CGUs are tested for impairment minimum annually.

Vessels and vessels Write-down of non-current assets are only applicable if the aggregat- USDm under construction Joint ventures Total ed carrying amount of all non-current assets in the CGU is higher than Write‐ Write‐ impairment calculated value in use and fair value less cost to sell. down Reversal down Reversal loss, net 2012 Fair value less costs to sell is estimated by use of independent broker Lauritzen Bulkers 103.2 ‐ 17.1 ‐ 120.3 Lauritzen Tankers 45.5 ‐ 1.1 ‐ 46.6 valuations and value in use is calculated as present value of future Total Group 148.7 ‐ 18.2 ‐ 166.9 cash flows to be derived from the vessels and other non-current assets during their useful life. The key assumptions in the impairment test includes estimated future No write-downs or reversals in 2011. J. Lauritzen A/S · Annual Report 2012 71

Critical accounting judgments in applying JL’s accounting policies Leases: The Group enters into different contracts regarding chartering vessels in and chartering vessels out. The majority of these contacts can easily be categorized as either operational or financial leases. However, some contracts may require judgment as to the substance of the agreement in order to recognise and measure them in accordance with JL’s accounting policies.

Joint operations: Categorising of joint operations as subsidiaries, associates or joint ventures is based on managerial judgment.

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

Vessels: Fair value, used as basis in the annual impairment testing, has been determined by at least two independent brokers.

Listed shares: For listed shares the fair value is determined as the stock exchange closing price at the balance sheet date.

Bonds: The fair value of investments in bonds is based on the closing price at the balance sheet date obtained directly from the market or from third parties. The fair value of bond related products where an active and liquid market does not exist, is obtained by using discounted cash flow techniques and observable market data prevailing at the balance sheet date.

Shares available for sale: Include unlisted shares for which valuation techniques are used to measure fair value. Changes in fair value are recognised in equity.

Derivatives: The fair values of derivative instruments are based on their listed market price, if available, or estimated using appropriate market rates prevailing at the balance sheet date.

Non-derivative financial liabilities and non-current receivables: The fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market interest rate at the balance sheet date. 72 J. Lauritzen A/S · Annual Report 2012

NOTE 2 SEGMENT INFORMATION

USDm Total Non- Lauritzen Lauritzen Lauritzen Lauritzen reportable reportable Un- Total 2012 Bulkers Kosan Tankers Offshore segments segments allocated Group

Revenue 361.1 210.3 61.0 60.1 692.6 - 2.9 695.6 Profit before depreciation (EBITDA) 4.0 35.7 14.3 40.4 94.5 (0.7) (5.1) 88.7 Depreciations and write-downs (150.7) (27.2) (55.3) (16.8) (249.9) - (0.0) (250.0) Profit/(loss) on sale of assets etc. (96.6) 1.8 0.0 (7.5) (102.3) - - (102.3) Operating income (243.2) 10.3 (40.9) 16.1 (257.8) (0.7) (5.1) (263.6) Share of profit in joint ventures (28.6) 0.7 (1.1) 2.7 (26.2) - - (26.2) Profit/(loss) before tax (296.8) 9.1 (49.5) 7.9 (329.3) (1.0) (18.9) (349.2) Income tax for the year 2.3 (0.3) 0.3 0.9 3.2 0.0 (2.5) 0.8 Profit/(loss) for the year (294.5) 8.9 (49.3) 8.8 (326.1) (1.0) (21.4) (348.4) Hereof non-controlling interests - - 1.3 - 1.3 - - 1.3

Non current assets 967.5 386.6 270.6 278.7 1,903.4 (0.0) 28.0 1,931.3 Investments in joint ventures 52.1 16.4 0.5 60.8 129.7 0.0 0.5 130.2 Current assets 61.0 65.1 20.5 2.3 148.9 2.1 233.0 384.0 Total assets 1,028.6 451.7 291.1 281.0 2,052.3 2.1 260.9 2,315.4 Liabilities 409.4 109.6 131.2 150.6 800.8 1.3 660.9 1,462.9 Net assets 619.2 342.1 159.9 130.4 1,251.6 0.8 (400.0) 852.4

Average number of employees 590 505 154 58 1,307 0 72 1,379

Profit margin (67.4)% 4.9% (67.0)% 26.7% (37.2)% N/A N/A (37.9)% Return on invested capital (24.5)% 2.7% (15.3)% 5.1% (13.2)% N/A N/A (13.5)% Investments in vessels etc. (CAPEX) 104.1 11.0 67.6 6.9 189.8 - 0.1 189.9 Invested capital - Year end 995.1 396.4 279.2 273.2 1,944.0 (1.1) 16.9 1,959.9 Invested capital - Average 1,108.3 408.3 274.8 364.6 2,156.0 (1.3) (2.6) 2,152.1 J. Lauritzen A/S · Annual Report 2012 73

NOTE 2 SEGMENT INFORMATION (continued)

USDm Total Non- Lauritzen Lauritzen Lauritzen Lauritzen reportable reportable Un- Total 2011 Bulkers Kosan Tankers Offshore segments segments allocated Group

Revenue 330.9 143.2 62.0 66.2 602.2 0.0 2.0 604.3 Profit before depreciation (EBITDA) 75.8 33.2 12.2 37.6 158.8 0.5 (13.2) 146.0 Depreciations and write-downs (37.9) (26.4) (6.3) (20.7) (91.2) 0.0 (0.0) (91.2) Profit/(loss) on sale of assets (38.6) 2.3 0.0 0.0 (36.3) - - (36.3) Operating income (0.7) 9.1 5.9 16.9 31.3 0.5 (13.2) 18.5 Share of profit in joint ventures 2.3 2.2 0.2 - 4.7 - - 4.7 Profit/(loss) before tax (16.8) 7.7 0.4 5.3 (3.5) 1.4 (43.8) (45.9) Income tax for the year (7.9) (1.1) (2.2) (1.6) (12.8) (0.2) 14.9 1.9 Profit/(loss) for the year (24.7) 6.5 (1.8) 3.7 (16.3) 1.2 (28.9) (44.0) Hereof non-controlling interests - - 2.2 - 2.2 - - 2.2

Non current assets 1,207.9 408.4 259.5 455.8 2,331.5 0.1 29.1 2,360.7 Investments in joint ventures 78.8 16.7 1.7 0.0 97.1 0.0 0.5 97.6 Current assets 86.7 35.3 90.0 47.1 259.0 6.3 55.9 321.2 Total assets 1,294.6 443.7 349.5 502.8 2,590.6 6.3 85.0 2,681.9 Liabilities 482.5 92.2 98.2 235.8 908.7 1.8 570.2 1,480.8 Net assets 812.1 351.4 251.3 267.0 1,681.9 4.5 (485.3) 1,201.1

Average number of employees 493 403 121 126 1,142 68 90 1,300

Profit margin (0.2)% 6.4% 9.6% 25.5% 5.2% N/A N/A 3.1% Return on invested capital 0.1% 2.7% 2.7% 3.6% 1.6% N/A N/A 1.1% Investments in vessels etc. (CAPEX) 299.6 27.2 87.6 23.7 438.1 - - 438.1 Invested capital - Year end 1,221.5 420.2 270.3 455.9 2,367.9 (1.4) (22.1) 2,344.4 Invested capital - Average 1,121.5 423.4 222.7 464.0 2,231.5 (2.4) (32.5) 2,196.6

The reportable segments in the J. Lauritzen Group consist of the four business units Lauritzen Bulkers (bulk carriers), Lauritzen Kosan (gas carriers), Lauritzen Tankers (product tankers) and Lauritzen Offshore (ASV and shuttle tankers). The four reportable segments are identical with how the J. Lauritzen Group is organized around the different services in the four segments. Each business unit is operated independently from the other business units, as each business unit services different customers and employs different types of vessels.

The revenue reported represents revenue from external customers. There are no inter-segment sales in 2012 or 2011.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 26. Unallocated income and expenses include group administration costs, finance costs and corporate services not allocated to the business units. Non-reportable operating segments include non-material activities. Unallocated assets and liabilities include mainly financial assets and financial liabilities not allocated to reportable segments. No vessels in any segment is limited to specific geographical area of the world and JL considers the global market as a whole hence no geographical information is relevant or available.

No customer information is given as J. Lauritzen is not reliant on any single major customer. 74 J. Lauritzen A/S · Annual Report 2012

NOTE 3 STAFF COSTS, OFFICE & FLEET NOTE 7 FINANCIAL EXPENSES

USD '000 2012 2011 USD '000 2012 2011

Staff costs include: Interest expenses on loans (65,845) (64,149) Wages and salaries 94,835 91,506 Other financial expenses (2,363) (5,618) Pensions (defined contribution plan) 3,006 3,603 Currency exchange gains and losses, net - (1,943) Social security 653 1,223 Financial instruments at FV through P&L, net (4,992) (2,304) Contract labour 97 344 Financial expenses (73,201) (74,014) 98,591 96,676

Remuneration to J. Lauritzen A/S' NOTE 8 TAX Exec. Mngt - salaries 3,372 3,541 Exec. Mngt - long term employment bonus 121 131 USD '000 2012 2011 Board of Directors 548 625 4,041 4,297 Certain group companies are jointly taxed with subsidiaries to the commercial foundation Lauritzen Fonden.

Average number of employees 1,379 1,300 Tax in the Income Statement consist of: Current tax 2,771 1,959 Number of employees at year-end 1,341 1,384 Deferred tax (1,988) (33) Income tax 783 1,926 Management and a number of executives are members of a bonus and/or severance scheme. Effective tax percent 0% 4%

Deferred tax on the Balance Sheet: Deferred tax 1 January 2,707 2,747 NOTE 4 OTHER SALES & ADMINISTRATIVE COSTS Translation adj. in foreign operations (65) (7) Tax on profit (1,988) (33) USD '000 2012 2011 Deferred tax 31 December 655 2,707 Total fees to elected auditors 588 1,016 Deferred tax concerns: Specified as follows: Taxable losses carried forward 655 2,707 Statutory audit 529 567 655 2,707 Tax advisory services 36 29 Fee for other services 23 420 Deferred tax, assets 655 2,707 655 2,707

NOTE 5 DEPRECIATIONS & WRITE-DOWNS Corporate tax (receivable)/payable can be specified as follows: Balance 1 January (833) 5,864 USD '000 2012 2011 Exchange rate adjustments (31) 482 Paid during the year 2,517 (5,220) Vessels (222,630) (88,923) Provision for the year (2,771) (1,959) Vessels under construction (24,681) - (1,117) (833) Land and buildings (126) (89) Machinery and equipment (2,521) (2,229) In 2005 the Danish based companies entered the Danish tonnage (249,958) (91,241) taxation system, the adoption of which is binding until at least 2014. JL does not expect to leave the system and therefore no deferred tax provision is made on the assets or liabilities effected by the Danish NOTE 6 FINANCIAL INCOME tonnage taxation system. If, however, JL should leave the Danish tonnage taxation system there could be a deferred tax liability of up to USD '000 2012 2011 a maximum of USD 10m. In excess of deferred tax assets recognised as specified above, the group have deductible unused tax losses of Interest income, bank deposits 1,781 4,135 USD 42m at year-end 2012. Other interest income 1,153 709 Currency exchange gains and losses, net 10,269 - Dividends received on shares available for sale 495 - Interest on financial instr. at FV through P&L 52 4 Firm commitments under FV hedge accounting 2,147 (1,213) Derivatives, FV hedge of firm commitments (2,147) 1,213 Financial income 13,749 4,848 J. Lauritzen A/S · Annual Report 2012 75

NOTE 9 VESSELS, PROPERTY & EQUIPMENT Vessels Machinery, USD '000 under Land & tools and 2012 Vessels construction buildings equipment Total

Cost as at 1 January 2,266,757 255,436 3,399 19,301 2,544,892 Exchange rate adjustments 283 - (4) (24) 255 Additions 8,540 181,090 - 225 189,855 Transferred from vessels under construction 362,632 (362,632) - - - Disposals (200,049) - - (22) (200,071) Disposals, loss of control of subsidiaries (257,505) - (341) - (257,846) Cost as at 31 December 2,180,658 73,894 3,053 19,480 2,277,085

Depreciation and write-down as at 1 January (298,074) (23,490) (460) (8,027) (330,051) Exchange rate adjustments (249) - 2 (22) (269) Transferred from vessels under construction (13,342) 13,342 - - - Depreciation (98,600) - (126) (2,521) (101,247) Write down (124,030) (24,681) - - (148,711) Disposals 25,775 - - - 25,775 Disposals, loss of control of subsidiaries 29,775 - 92 - 29,867 Depreciation and write-down as at 31 December (478,745) (34,829) (491) (10,570) (524,636)

Balance as at 31 December 1,701,913 39,065 2,562 8,909 1,752,449

2011

Cost as at 1 January 1,478,922 703,931 3,237 17,253 2,203,344 Exchange rate adjustments in foreign companies 838 - (73) 7 773 Additions 16,907 417,931 234 3,035 438,107 Transferred from vessels under construction 828,892 (828,892) - - - Disposals (58, 802) (37, 535) - (995) (97, 332) Cost as at 31 December 2,266,757 255,436 3,399 19,301 2,544,892

Depreciation and write-down as at 1 January (226,056) (40,873) (321) (6,199) (273,450) Exchange rate adjustments in foreign companies (294) - (50) 45 (298) Transferred from vessels under construction (17,383) 17,383 - - - Depreciation (88,923) - (89) (2,229) (91,241) Disposals 34,582 - - 355 34,938 Depreciation and write-down as at 31 December (298,074) (23,490) (460) (8,027) (330,051)

Balance as at 31 December 1,968,683 231,945 2,939 11,274 2,214,841 76 J. Lauritzen A/S · Annual Report 2012

NOTE 10 INVESTMENTS IN JOINT VENTURES NOTE 12 PREPAYMENTS

USD'000 2012 2011 Prepayments include USD 5.6m (2011: USD 11.2m) related to a bulk carrier charter agreement with a remaining maturity of more than 1 Cost as at 1 January 68,682 82,144 year of which USD 0.2m (2011: USD 5.6m) relates to charter periods Additions during the year 65,055 1,854 later than 2013. Capital reduction - (15,071) Disposal during the year (3,158) (245) Cost as at 31 December 130,579 68,682 NOTE 13 EQUITY

Revaluation as at 1 January 49,224 50,618 The authorized and issued share capital of J. Lauritzen A/S has Exchange rate adjustments (16) 9 remained unchanged at DKK 430m in 2012 with 29 shares of DKK Dividends received (5,600) (6,106) 50,000 or multiples of this. Revaluations during the year (26,203) 4,708 Disposal during the year 3,505 (6) Capital management Revaluation as at 31 December 20,911 49,224 The general guidelines on capital approved by the Board of Directors Write-down as at 1 January (21,243) (21,243) include minimum solvency ratio of 35-40% for the Group. Write-down as at 31 December (21,243) (21,243) JL pursues a prudent dividend policy that secures the necessary Balance as at 31 December 130,247 96,663 liquidity and supports JL’s ability to grow its business organically.

At the end of 2011 and 2012 no proposed dividends were included in Key figures for joint ventures, in total: 2012 2011 retained earnings.

Revenue 135,720 137,338 Net profit (22,045) 23,314 NOTE 14 PROVISIONS Assets 805,132 665,922 Liabilities 449,365 368,124 USD '000 2012 2011

Group's share of net profit (30,071) 4,313 Provisions as at 1 January 1,037 5,772 Internal profit/loss 3,868 395 Used during the year (920) (4,456) Net profit in joint ventures (26,203) 4,708 Reversal of provisions during the year (99) (278) Hereof associated companies amount to 40 (28) Provisions as at 31 December 18 1,037 Group's share of equity 133,178 104,123 Hereof: Internal profit/loss (2,931) (7,460) Non current liabilities - - 130,247 96,663 Current liabilities 18 1,037 Negative equity set off against receivables - 956 Provisions as at 31 December 18 1,037 Provision for negative equity - - Investments in joint ventures 130,247 97,619 Hereof associated companies amount to 186 162

NOTE 11 OTHER RECEIVABLES

USD '000 2012 2011

Specification of other receivables Financial derivatives (refer to note 16) 11,000 793 Bank deposits pledged as security for debt 34,180 11,859 Other short-term receivables 28,857 16,948 Total other receivables 74,037 29,600

Compared to annual report 2011 bank deposits pledged as security for debt of USD 11.9m has been reclassified from cash at hand and in bank to other receivables. J. Lauritzen A/S · Annual Report 2012 77

NOTE 15 LONG-TERM BORROWINGS

2012 2011 USD '000 <1 year 1 - 5 year > 5 year Total <1 year 1 - 5 year > 5 year Total

Mortgage on vessels *) (89,678) (703,554) (207,479) (1,000,712) (83,240) (702,338) (323,190) (1,108,768) Subordinated loan **) - (159,582) - (159,582) - (166,796) - (166,796) Issued bonds *) - (212,536) - (212,536) - (116,287) - (116,287) Other debt (709) (1,558) - (2,267) - (2,233) - (2,233) Total long-term borrowings (90,387) (1,077,230) (207,479) (1,375,096) (83,240) (987,653) (323,190) (1,394,083) Fair value of long-term borrowings (1,380,965) (1,395,310) *) Please refer to pp 42-45 for description of financial covenants. **) The loan is granted from LF Investment ApS and is subordinated to all other debts, liabilities and obligations.

Average Average effective effective Fixed/ Interest rate interest rate, interest rate USD '000 Currency Variable fixation excl. hedging incl. hedging Book value 2012 Mortgage on vessels USD Variable 3-6 month 2.30% 3.46% (914,633) Mortgage on vessels JPY Variable 6 month 2.41% 2.74% (86,078) Subordinated loan DKK Variable 12 month 4.16% 4.16% (159,582) Issued bonds NOK Fix./Var. 3-5 years 10.35% 9.24% (212,536) Other debt DKK Fixed 2-3 years 4.73% 4.73% (2,267) Total 3.70% 4.38% (1,375,096)

2011 Mortgage on vessels USD Variable 3-6 month 2.47% 3.40% (1,026,701) Mortgage on vessels JPY Variable 6 month 2.40% 2.77% (82,067) Subordinated loan DKK Variable 12 month 4.43% 4.43% (166,796) Issued bonds NOK Fixed 4 years 10.50% 9.85% (116,287) Other debt DKK Fixed 3-4 year 4.73% 4.73% (2,233) Total 3.20% 3.96% (1,394,083)

Currency exposure on non-USD long-term borrowings, net of hedging:

2012 2011 Currency Net currency Currency Net currency hedging Bank exposure on hedging Bank exposure on USD '000 Book value derivaties deposits*) loan Book value derivaties deposits*) loan

JPY (86,078) 14,000 - (72,078) (82,067) - - (82,067) DKK *) (161,849) - 148,614 (13,236) (169,028) - 152,811 (16,217) NOK (212,536) 212,536 - - (116,287) 116,287 - - Total (460,463) 226,536 148,614 (85,314) (367,382) 116,287 152,811 (98,284) *) JL limits the currency risk by placing funds in DKK deposits.

Interest exposure on long-term borrowings to floating interest rates:

USD '000 2012 2011 Total long-term borrowings (1,375,096) (1,394,083) Hereof fixed to maturity (128,027) (118,520) Floating interest borrowings (1,247,069) (1,275,563) Interest rate swaps floating to fixed at year end, nominal 679,235 534,120 Exposure to floating interest rates at year end (567,834) (741,443) 78 J. Lauritzen A/S · Annual Report 2012

NOTE 16 FINANCIAL INSTRUMENTS AND FINANCIAL RISKS include minimum liquidity and requirement for external funding to be drawn on or post delivery of vessels. JL is through its operation, investment and financing exposed to certain financial risks. The financial risks relate to and defined as such: At year-end 2012 JL’s cash and cash equivalents amounted to USD 267m and besides having an unsecured overdraft facility of DKK 100m for multi-currency short-term financing needs at the Group’s disposal, Liquidity Risk The risk that JL is able to meet its future cash flow needs JL had unused and committed credit facilities totaling USD 64.0m. These funds are to cover future commitments on newbuildings to be Market Risk The risk of losses in financial positions arising from movements in market prices to which JL is exposed mortgaged post delivery. Please refer to note 23 for contractual commitments. JL faces no risk related to refinancing until August 2014 Credit Risk The risk of incurring a financial loss if a customer or where a minor facility matures. Remaining facilities have maturity counterparty fails to fulfill its contractual obligations dates from 2015 until 2023.

Financial risks are regularly assessed and prioritized based on how JL’s loan portfolio consists of traditional mortgage-backed ship finance likely they are to occur and their potential impact. As defined by JL’s (approx. 51% of total facilities), ECA (Export Credit Agency) backed Board of Directors, overall policies and objectives for financial risks agreements (approx. 22% of total facilities) as well as unsecured (non- were generally unchanged from 2011. mortgage) corporate bonds and a subordinated loan (approx. 27% of total facilities). According to JL’s Financial Strategy no financial coun- LIQUIDITY RISK terparty may account for more than 25% of total loan facilities. The purpose of managing liquidity risk is to ensure sufficient capital for day-to-day operations and financial commitments also in distressed With some banks, JL has agreed to make margin payments if some situations. Cash requirements are regularly assessed in various sce- predefined financial limits in loan agreements are met. At year-end narios and stress tested. 2012, JL has made additional security available for three financial institutions in the form of cash in order to counteract any potential breach Liquidity is continuously monitored and assessed based on forecasts of minimum value clauses in the existing credit facility (cf. note 20). for the current year and years to come, outstanding capital expendi- There have been no breaches of credit facilities (cf. note 15). ture, proceeds from committed and expected credit facilities and future liabilities from existing and expected future credit facilities. This is Below is a maturity analysis of JL’s financial liabilities at year-end 2012. done to ensure liquidity is adequate at all times. A maturity analysis of operational lease obligations is included in note 22. The general guidelines on liquidity approved by the Board of Directors

USD '000 Carrying Contractual 2012 amount cash flows <1 year 1-5 years >5 years

Non-derivative financial instruments: Mortgage on vessels, bank debt and other interest-bearing debt *) (1,375,096) (1,575,328) (145,553) (1,204,341) (225,433) Trade and other payables (49,335) (49,335) (49,335) -- Derivatives, liabilities at fair value: Forward exchange contracts (1,143) (1,143) (1,143) - - Interest rate and currency swaps (36,600) (36,600) (11,014) (23,667) (1,919) FFA’s and oil contracts (385) (385) (385) - - Total at 31 December 2012 (1,462,560) (1,662,791) (207,431) (1,228,008) (227,352)

2011

Non-derivative financial instruments: Mortgage on vessels, bank debt and other interest bearing debt *) (1,394,083) (1,661,640) (143,875) (1,171,649) (346,116) Trade payable and other payables (42,572) (26,538) (26,538) -- Derivative, liabilities at fair value: Forward exchange contracts (1,727) (1,727) (1,727) - - Interest rate and currency swaps (39,740) (39,740) (9,888) (25,843) (4,009) FFA’s (155) (155) (155) - - Total at 31 December 2011 (1,478,277) (1,729,800) (182,183) (1,197,492) (350,125)

*) Contractual cash flows include undiscounted interest payments based on interest levels at year end J. Lauritzen A/S · Annual Report 2012 79

MARKET RISKS the equivalent of three months forward. JL may hedge up to 100% net Market risks are the risk of losses in financial positions arising from 12 month rolling non-USD operational cash flow to secure minimum movements in market prices to which JL is exposed to through finan- budget exchange rates. Hedge accounting is not applied to forward cial instruments. Market risks are regularly assessed and prioritized contracts relating to future costs in non-USD currencies. based on how likely they are to occur and their potential impact. Based on this assessment the following market risks are considered signifi- The hedging strategy for non-USD cash flows for investments in ship cant for JL: newbuildings is based on the total portfolio of outstanding capital expenditure payable in 2013. JL’s policy is to hedge non-USD payments Currency risk - Operational cash flow on vessels when the exchange rate is viewed as advantageous with a minimum predefined target level at payment due date. JL uses hedge Currency risk from operations is related non-USD costs where DKK expenses accounting (fair value hedge) for the derivatives associated with firm are the largest contributor. commitments for vessels under construction.

According to the hedging strategy for non-USD long-term borrowings, Currency risk - Investments JPY may be hedged up to 100% if the forward rate is viewed advan- Relates to the risk of contractual commitments in non-USD. At year end JL tageous. Regarding the DKK subordinated loans JL aims to limit the had a commitment on newbuildings in JPY equivalent of USD 32m. currency risk by placing funds in DKK deposits. Regarding the Bond issue denominated in NOK the full amount was swapped to USD on the dates of issue. Cash flow hedge accounting applies for the USD/ Currency risk - Financing NOK swap.

Relates to long-term borrowing in non-USD. JL had at year-end long-term Please refer to note 15 for further disclosure of JL’s currency exposure borrowings denominated in NOK, DKK and JPY, ref note 15.. of long-term borrowings and hedging hereof.

Interest rates risk - Long-term borrowings Sensitivity of currency risk To measure currency risk in accordance with IFRS 7, sensitivity is cal- 41% of JL’s long-term borrowings are exposed to floating interest rate. culated as the change in fair value of future cash flows from financial instruments as a result of fluctuations in exchange rates on balance sheet date. Sensitivity to fluctuations in non-USD currencies at bal- To a minor extent JL is exposed to other marked risks that are con- ance sheet date is based (other things being equal and after tax) on sidered less significant. These include risks on financial instruments a 10% decrease in currency translation rates against USD (assum- related to share prices, oil prices and freight rates (FFA). JL use deriva- ing 100% effectiveness) would result in a net profit/loss of USD 5.0m tives to hedge oil and freight rates in a small scope. The fair value of (2011: 4.6m) and affect equity by USD 2.5m (2011: 2.2m). The effect these instruments is disclosed in the table “Derivative financial instru- of a 10% increase in the currency translation rates against USD would ments”. have a corresponding inverse effect.

Below is a description of how JL manages the significant market risks and sensitivity analysis of the exposure. Interest rate risk JL’s policy is to hedge risks associated with changes in interest rates Sensitivity information is calculated at balance sheet date and com- to limit the negative financial effects of adverse changes in interest prises only sensitivity relating to financial instruments, so the amounts rates by converting variable interest rates to fixed interest rates. Net disclosed do not necessarily give a complete picture of JL’s risks relat- interest rate risk may be hedged via forward rate agreements, interest ing to the different categories of risk. rate swaps and related instruments if assessed as advantageous. The general hedging policy is approved by the Board of Directors. Currency risk JL’s operating and reporting currency is USD and thus all amounts are JL uses cash flow hedge accounting in respect of interest rate deriva- recorded and reported in USD. Matching income and expenses and tives. These are recycled in the income statement over the term of the assets and liabilities minimises the net currency risk, leaving net posi- hedged loans. Please refer to note 15 for disclosure of JL’s exposure to tions to be focused on. floating interest rates at balance sheet date.

JL’s policy is to use derivative instruments to hedge the currency risks Sensitivity of interest rate risk relating to net non-USD cash flows from operating activities, invest- Sensitivity of interest fluctuations is calculated as the hypothetic effect ments and financing. The general hedging policy is approved by the on net profit and equity as a result of fluctuations in interest rates at Board of Directors. balance sheet date.

The hedging strategy for operating costs is based on estimated annual The sensitivity analysis includes financial instruments recognized at net non-USD cash flows, i.e. 12 month rolling cash flow. JL’s policy is fair value for which the calculated effect on equity represents an im- to use forward currency contracts to provide cover for at least 25% or mediate fair value change from a thought change in interest rates and 80 J. Lauritzen A/S · Annual Report 2012

financial instruments with variable interest recognized at amortized The risks relating to financial counterparties, financial instruments, costs for which the calculated effect represents a one year effect on bonds and cash funds are minimized by trading only with financial net profit and equity based on balances at year end. institutions with a long-term investment grade credit rating from Moody’s and by defined limits on deposits on each financial partner. Assumptions for the sensitivity analysis: All hedging instruments assumed 100% effective In 2012 a provision of USD 0.2m were made for losses on trade receiv- Changes in interest rates are global and thus the impact on the fair ables (2011: USD 0m). At year-end 2012, JL did not have any further value of forward currency contracts and similar derivatives is not con- overdue trade receivables (2011: USD 0m). sidered Shares available for sale and shares at fair value through profit or loss At year-end 2012, all of our financial counterparties had credit ratings are not included in sensitivity calculations due to inability to reliably of or above Baa2. measure the sensitivity of share prices to interest rate changes. JL’s exposure to credit risks at balance sheet date can be illustrated On financial instruments at fair value the calculated effect after tax as follows: based on a 1% decrease in interest rates would affect profit/loss by USD (6.8)m (2011: (5.3)m) and equity by USD (11.9)m (2011: USD USD ‘000 2012 2011 (20.8)m). On financial instruments with variable interest recognized at Other long-term receivables 21,985 20,746 amortized costs profit/loss and equity would be effect by USD 9.8m Trade receivables 5,250 18,706 (2011: 9.0m). Financial derivatives 11,000 793 Other short-term receivables 28,857 16,948 A 1% increase in interest rates would have a corresponding inverse Cash and bank deposits 267,000 234,132 effect. Maximum credit risk 334,092 291,325

CREDIT RISK The maximum credit risk corresponds to the carrying value of the in- Credit risk is the risk of incurring a financial loss if a customer or coun- dividual assets. terparty fails to fulfill its contractual obligations. Additionally, JL has non-monetary receivables relating to payments on JL assesses customers for creditworthiness based on historical trading vessel under construction. Risks relating to payments on vessels un- and payment records, input from rating agencies as well as industry der construction are in general limited by agreements such as refund knowledge and customer reputation. Further, customers and counter- guarantees. parties are accepted only when fulfilling general requirements. In certain cases contracts are guaranteed by parent companies or similar. DERIVATIVE FINANCIAL INSTRUMENTS JL’s policy is to use derivative financial instruments to hedge financial Very large contracts and very long-term commitments are reviewed risks. At year end JL held the following derivatives: and approved by the Executive Management and in some cases by the Board of Directors.

USD m 2012 2011 Cash flow /Fair value Nominal, Duration, Recognised Nominal, Duration, Recognised hedge USDm month on equity Fair value USDm month on equity Fair value Hedge accouning applied: Currency: USD/JPY Fair value 32.1 0-12 - (0.3) 34.3 0-12 - 0.6 Currency: USD/NOK Cash flow 212.5 29-58 (0.6) 8.5 116.3 41 (3.8) (5.8) Interest rate swaps Cash flow 542.0 21-131 (31.6) (31.6) 534.1 33-139 (30.3) (30.3) Terminated interest rate swap Cash flow N/A N/A 0.6 N/A N/A N/A 0.7 N/A Total (31.7) (23.4) (33.4) (35.6)

Hedge accouning not applied: Currency: USD/NOK N/A (2.1) 0-1 - (0.2) (2.1) 0-1 - 0.0 Currency: USD/EUR N/A 7.5 0-2 - 0.4 - - - - Currency: USD/DKK N/A 27.0 0-1 - 0.7 31.0 0-1 - (1.3) Currency: USD/JPY N/A 2.8 0-1 - 0.2 (2.0) 0-1 - (0.4) FFA's and oil contracts N/A N/A N/A - 0.2 N/A N/A - (0.2) Interest indexswap N/A 38.2 39 - (5.0) 38.2 51 - (2.2) Total - (3.7) - (4.1)

Total derivative financial instruments (27.1) (39.7) Presented in the financial statement as: Other receivables 11.0 0.7 Other payables (38.1) (40.4) J. Lauritzen A/S · Annual Report 2012 81

CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES NOTENote s19 19 Sale s aofl econtrolling of contro interestlling in interesubsidiariesst in subsidiaries The following categories of financial assets and liabilities are recognized in the balance sheet: OnOn 30 30 June June 2012 2012 JL JhasL has formed formed a 50/50 a 50/50 joint venturejoint venture with with HitechVi- HitechVisionsion on JL's on offshore JL's offshore accommodation accomodation businessbusiness through aa share sub- sharescription subscription agreement. agreement. JL contributed JL contributed to the to JV the with JV with the theshareholdings USD ‘000 2012 2011 shareholdingsin Dan Swift in Singapore Dan Swift SingaporePte. Ltd. Pte.and Ltd. subsidiaries and subsidiaries hereto whereas heretoHitecVision whereas contributed HitecVision with contributed cash. In with forming cash. Inthe forming joint venture the joint JL di- venture JL divested its subsidiaries related to the offshore Fin. assets at FV through P/L *) 11,157 2,896 vested its subsidiaries related to the offshore accommodation busi- accomodation business and instead acquired an investment in the Loans and receivables**) 357,272 302,391 ness and instead acquired an investment in the new joint venture Axis new joint venture Axis Offshore. Below is a specification of book Fin. assets available for sale **) 26,010 24,788 valueOffshore. of derecognised Below is a assets specification and liabilities of bookof the value divested of derecognised as- Fin. liabilities - at FV through P/L *) (38,128) (41,622) subsidiaries:sets and liabilities of the divested subsidiaries: Fin. liabilities - at amortized cost**) (1,424,432) (1,436,655) As at June USD '000 30 2012 *) Figure includes financial derivatives designated for hedge accounting Vessels, property and equipment 227,979 **) Amounts recognized for financial asset and liabilities at amortized cost do not Mortgage on vessels (133,891) differ materially from their fair value with the exception of issued bonds. Fair value Other receivables 1,180 of issued bonds amount to USD 218.4m whereas the carrying amount totalled Prepayments and other payables (3,923) USD 212.5m. Cash and cash equivalents 9,940 Total net assets in divested subsidiaries 101,285

Fair value hierarchy Total consideration, net of transaction costs*) 93,741 With the exception of listed bonds and shares of USD 0.2m (2011: Hereof cash and cash equivalent (9,940) USD 2.1m) (level 1) and shares available for sale of USD 26.0m (2011: Net cash from sale of controlling interest 83,801 USD 24.8m) (level 3), all financial instruments are stated at fair value Acquisition of share of joint venture, Axis Offshore (47,245) on the basis of observable market prices (level 2), directly as prices or Net cash received by JL 36,555 indirectly derived from prices.

Profit/(loss) on sale of subsidiaries: In 2012 fair value adjustment of Level 3 financial instruments amount- Total net assets in divested subsidiaries (101,285) ed to USD 0.8m recognised in other comprehensive income (2011: Total consideration, net of transaction costs*) 93,741 21.2m). The fair value adjustment relate to unlisted shares for which Profit/loss on sale of subsidiaries (7,545) a valuation technique has been used to determine fair value. Material inputs in the valuation comprise equity value and expected ROE com- *) Transaction cost of USD 0.8m recognised in profit/loss on sale of pared to JL’s return requirements. Financial instruments categorized at subsidiaries Level 3 have developed as follows: NOTE 20 MORTGAGES USD ‘000 2012 2011 USD '000 2012 2011 Book value at 1 January 24,788 3,279 Purchase during the year 404 264 Debt for a total of 1,000,712 1,108,768 Sale during the year - - has been secured by mortgage in assets Fair value adjustment 818 21,245 at the following book values: Book value at 31 December 26,010 24,788 Vessels 1,690,497 1,951,302 Cash and cash equivalents 34,180 11,859 1,724,677 1,963,161 NOTE 17 ADJUSTMENTS TO CASH FLOW

USD '000 2012 2011 NOTE 21 CONTINGENT LIABILITIES

(Profit)/loss on sale of vessels 94,801 36,251 USDm 2012 2011 (Profit)/loss on sale of subsidiaries 7,545 - (Profit)/loss on sale of other assets 11 (3) Guarantees undertaken for debt in joint ventures 158 17 Changes in provisions (1,019) (4,734) Max. obligation to pay in capital into joint ventures 80 45 Other adjustments - (35,963) Guarantees regarding newbuildings - 15 101,337 (4,449) Certain claims have been raised against JL. The judgment of the management is that the outcome of these claims will not have any NOTE 18 CHANGE IN WORKING CAPITAL material impact on JL's financial position.

USD '000 2012 2011 JL has issued certain guarantees in connection with the sale of assets.

Change in stocks (5,543) (8,082) Change in receivables 991 59,212 Change in payables 8,458 (16,136) 3,906 34,994 82 J. Lauritzen A/S · Annual Report 2012

NOTE 22 OPERATING LEASES OF VESSELS

At the balance sheet date JL has the following contractually committed charter income from time charter and bareboat contracts:

USDm

2012 Bulkers Kosan Offshore Tankers Total 0 - 1 Year 65.3 38.2 35.2 20.0 158.7 1 - 5 Year 225.3 14.9 90.1 19.9 350.2 > 5 Year 298.4 0.1 115.8 - 414.3 Total 589.0 53.2 241.1 39.9 923.3 Number of vessels chartered out: 8 15 3 5 31

2011 Bulkers Kosan Offshore Tankers Total 0 - 1 Year 121.0 21.4 80.7 27.9 251.0 1 - 5 Year 301.5 7.7 266.2 34.0 609.3 > 5 Year 368.4 - 136.0 0.3 504.7 Total 790.9 29.0 483.0 62.2 1,365.0 Number of vessels chartered out: 16 7 4 8 35

At the balance sheet date JL has the following operational lease liabilities:

USDm

2012 Bulkers Kosan Offshore Tankers Total 0 - 1 Year 187.2 14.5 - 28.7 230.4 1 - 5 Year 256.0 9.9 - 53.7 319.6 > 5 Year 116.1 - - - 116.1 Total 559.4 24.4 - 82.4 666.2 Number of vessels chartered in 43 9 - 7 59 Herof included chartered vessels where: JL has purchase option 9 - - - 9 JL has option to extend 6 3 - - 9

2011 Bulkers Kosan Offshore Tankers Total 0 - 1 Year 215.3 10.9 - 26.3 252.5 1 - 5 Year 333.3 7.6 - 35.7 376.7 > 5 Year 72.6 - - 0.3 72.9 Total 621.1 18.5 - 62.4 702.0 Number of vessels chartered in 50 8 - 8 66 Herof included chartered vessels where: JL has purchase option 7 - - - 7 JL has option to extend 8 - - - 8 J. Lauritzen A/S · Annual Report 2012 83

NOTE 23 CONTRACTUAL COMMITMENTS Change in accounting policies and new financial reporting standards JL has entered into newbuilding contracts with a remaining With effective date 1 January 2012, JL has adopted: contractual commitment of USD 103.9m. These contracts cover the construction of 1 bulk carrier and 3 product tankers due for delivery in Amendments to IFRS 7 Disclosures – Transfers of Financial Assets 2013. Amendments to IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-Time Adopters NOTE 24 RELATED PARTIES Amendment to IAS 12 Deferred Tax – Recovery of Underlying Assets

As owners of J. Lauritzen A/S the Lauritzen Foundation and its affilliated companies are related parties. None of these new IFRS’s and IFRIC’s has affected recognition or measurement in 2012. Other related parties with a significant influence of the activities of J. Lauritzen A/S is the company's Board of Directors and the Executive Basis of preparation Management (key management personnel). The financial statements are presented in US dollars, rounded to the nearest thousand. Finally, additional related parties comprise joint ventures (cf. note 10) in which J. Lauritzen has a significant influence. Subsidiaries and joint ventures together with J. Lauritzen's shareholding are shown in The financial statements are prepared under the historical cost con- the overall group structure on page 102-103. vention, except that the following assets and liabilities are stated at their fair value: derivative financial instruments, financial instruments Transactions with related parties are conducted at arms length held for trading and financial instruments available for sale. and have comprised the following income/(expenses): Non-current assets and disposal groups classified as held for sale are USD '000 2012 2011 measured at the lower of its carrying amount prior reclassification and LF Investment fair value less costs to sell. Management fee 173 219 Rental of office facilities (1,649) (2,136) The accounting policies set out below have been applied consistently Interest expenses on subordinated loan (6,888) (7,571) by all JL entities and to all periods presented in these consolidated financial statements. Joint ventures and associated companies Management fee 2,846 3,765 Basis of consolidation There have been no other material transactions with related parties The Annual Report comprises the Parent Company, J. Lauritzen A/S, other than those stated above. and subsidiaries in which the Parent Company has directly or indirectly the power to govern the financial and operating policies. This is Consideration to key management personnel is disclosed in note 3. normally accomplished by holding more than 50% of the voting rights. The existence and effect of potential voting rights that are currently NOTE 25 Events after the balance sheet exercisable or convertible are considered when assessing whether JL has control or significant influence over another entity. Early 2013, the owner of J. Lauritzen A/S, the Lauritzen Foundation, decided to convert the two subordinated loans of USD 159.6m to eq- Enterprises in which JL has a significant influence, but not control are uity. classified as associates. There have been no other events after the balance sheet date that could materially affect the accounts as presented. Jointly controlled entities and associates are recognised using the equity method.

NOTE 26 Accounting policies The Consolidated Financial Statements are prepared on the basis of the financial statements of the Parent Company and its subsidiaries, J. Lauritzen A/S is a private limited company with domicile in Den- by combining items of a uniform nature and eliminating inter-compa- mark. The consolidated financial statements for the period 1 January ny transactions and balances, and are based on financial statements – 31 December 2012 comprise J. Lauritzen A/S and its subsidiaries prepared in compliance with JL’s accounting policies. (The Group).

Acquisitions, disposals and entities formed during the year are in- The consolidated financial statements have been prepared in accor- cluded in the financial statements during the period of JL’s control or dance with International Financial Reporting Standards (IFRS) as ad- significant influence. Comparative figures are not adjusted for acquisi- opted by the EU and additional Danish disclosure requirements for an- tions. Disposals or liquidations are presented as discontinued opera- nual reports of reporting class D. In addition, the consolidated financial tions. statements have been prepared in compliance with the International Financial Reporting Standards issued by the IASB. 84 J. Lauritzen A/S · Annual Report 2012

Business combinations as Other Receivable and Other Payables respectively, and offsetting On acquisition of businesses, the purchase method is applied, accord- is made only when the JL has the right and intention to settle several ing to which the identifiable assets, liabilities and contingent liabilities derivatives net. acquired are measured at their fair values on the date of acquisition. The excess of the cost of acquisition over the fair value of JL’s share Fair value hedge of the identifiable assets, liabilities and contingent liabilities acquired Changes in the fair value of derivatives designated as and qualifying are recorded as goodwill. If the cost of acquisition is less than the fair for recognition as a hedge of the fair value of a recognised asset or li- value of the net assets of the business acquired (negative goodwill), ability are recognised in the income statement together with changes the difference is recognised directly in the income statement. in the fair value of the hedged asset or liability. Hedging of future cash flows relating to firm commitments are treated as fair value hedges. Gains or losses from the disposal or liquidation of subsidiaries or associates are stated as the difference between the proceeds from dis- Cash flow hedge posal or liquidation and the book value of the net assets at the date Where a derivative financial instrument is designated as a hedge of a of disposal or liquidation. This includes any goodwill as well as any highly probable forecasted transaction, the effective part of any gain or anticipated disposal or liquidation costs. loss on it is recognised in other comprehensive income in the hedging reserve of equity. When the forecasted transaction subsequently is re- Translation of foreign currencies alised, the associated cumulative gain or loss is reclassified from other Items included in the financial statements of each of JL’s entities are comprehensive income in the hedging reserve of equity to the income measured using the currency of the primary economic environment in statement in the same period or periods during which the hedged fore- which the entity operates (the functional currency). The consolidated casted transaction affects profit or loss. The ineffective part of any gain financial statements of JL are stated in USD which is both JL’s func- or loss is recognised in the income statement immediately. tional and presentation currency. When a hedging instrument expires or is sold, terminated or exercised, Foreign currency transactions are translated into the functional cur- or the entity revokes designation of the hedge relationship but the rency at the exchange rate of the date when initially recognised. Gains hedged forecast transaction still is expected to occur, the cumulative and losses arising between the exchange rate of the transaction date gain or loss at that point remains in other comprehensive income in and that of the settlement date are recognised in the income state- the hedging reserve of equity and is recognised in accordance with the ment under financial items. above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain Receivables, payables and other monetary items in foreign currencies or loss recognised in equity is recognised in the income statement that have not been settled at the balance sheet date are translated at immediately. the exchange rates then prevailing. Any differences between the exchange rates at the balance sheet date and the transaction date rates Net investment hedge are recognised in the income statement under financial items. Derivatives used to hedge net investments in foreign subsidiaries, associates or joint ventures are accounted for similarly to cash flow The results and financial position of any JL entity that has a functional hedges. Any gain or loss on the hedging instrument relating to the currency different from JL’s presentation currency are translated into effective portion of the hedge is recognised in equity; the gain and the presentation currency as follows: loss relating to the ineffective portion is recognised immediately recognised in the income statement. Assets and liabilities, including goodwill and fair value adjustments arising on consolidation are translated at the closing rates at the date Derivatives that do not qualify for hedge accounting of the balance sheet. For derivatives that do not qualify for hedge accounting, changes in fair value are recognised in the income statement as they occur. Income and expenses for each income statement are translated at exchange rates approximating the exchange rate of the date of transac- Segment information tion date, and all resulting exchange differences are recognised as a Segment information on key business areas is disclosed in line with separate component of equity. JL’s internal financial management, risks and accounting policies.

Exchange differences arising from the translation of the net investment Assets in a segment comprise those that are directly attributable to the in foreign subsidiaries, associates, joint ventures and of borrowings or segment’s operations, including intangible assets, vessels, property, other currency instruments relating to hedging such investments are equipment, investments in associated companies and joint ventures, recognised in other comprehensive income in the translation reserve inventories, trade and other receivables, prepayments and cash. of equity. Exchange differences are released to the income statement upon disposal of the net investment. Liabilities in a segment comprise those that are directly employed in the segment’s operation, including trade payables, accruals and other Derivative financial instruments and hedging activities liabilities. Derivatives are recognised at fair value. Positive and negative fair values of derivatives are recognized in the statement of financial position J. Lauritzen A/S · Annual Report 2012 85

Income statement Revenues Vessels, property and equipment Revenues comprise charter income, freight and demurrage revenues Vessels from the vessels, and miscellaneous income. Revenues are recog- Vessels are measured at cost less accumulated depreciation and ac- nised in the income statement as services are delivered. Uncompleted cumulated impairment losses. Vessels are depreciated on a straight voyages are recognised with the share related to the financial year. line basis to an estimated scrap value. Expected useful life of vessel Earnings from vessels which are engaged in pools are recognised in is 25 years. revenue on a net distribution basis. Cost of vessels acquired by way of finance leases are stated at the In addition revenue comprises changes in fair value on forward freight lower of fair value, and the present value of the minimum lease pay- agreements (FFA) used as hedging of JL’s freight income. Hedge ac- ments at the inception of the lease. counting is not applied on FFA’s. Rebuilding of vessels is capitalised if the rebuilding is intended to ex- Operating cost of vessels tend the service life and/or improve the earning potential. Rebuilding is Operating cost of vessels includes maintenance and repairs, insurance depreciated over the expected service life of the investment. of hulls and machinery, consumption of lubricants and supplies etc. Costs relating to dry dockings are capitalised and depreciated on a Other operating costs straight line basis. Expected useful life of dry dockings range from 30 Other operating costs include bunker oil, port costs, agent’s com- to 60 month. missions and other voyage related costs. Furthermore other operating costs include fair value changes on financial bunkers contracts Vessels under construction are measured at cost incurred until the which are entered into for the purpose of hedging JL’s bunkers costs time the vessel is taken into service. as hedge accounting is not applied for these transactions. Vessels which are held for sale are measured at the lower of the carry- Share of profit in associated companies and joint ventures ing amount and fair value less costs to sell. The proportionate share of the net profit after tax in associated companies and joint ventures, after the elimination of proportional share of Land internal profit/loss is recognised in the income statement. Land is measured at cost.

Financial items Buildings Financial items include interest income and expense, realised and Buildings are measured at cost less accumulated depreciation and ac- unrealised exchange gains and losses, financial expenses in respect cumulated impairment losses. Buildings are depreciated on a straight of finance leases, adjustments to the value of securities and certain line basis. Expected useful life of buildings is 50 years. financial instruments and other financial income and expenses. Machinery, tools and equipment Borrowing costs directly attributable to the acquisition or construction Machinery, tools and equipment are measured at cost less accumu- of assets are capitalised as part of the cost of the asset. lated depreciation and accumulated impairment losses. Machinery, tools and equipment are depreciated on a straight line basis. Expected Income tax useful life of machinery, tools and equipment is 5-10 years. Income tax consists of tax calculated according to the regulations of the Danish Tonnage Tax Act for shipping activities and according Gains and losses on the disposal of tangible assets are calculated as to general tax regulations for other activities, as well as adjustments the difference between the sales price less cost of sales and the net related to deferred tax. Income tax is recognised in the income state- book value at the time of sale. ment except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Investments in associates and joint ventures Investments in associates and joint ventures are recognised according Statement of financial position to the equity method of accounting. Goodwill Goodwill is stated at cost less any accumulated impairment losses. All Any goodwill resulting from the acquisition is included in the carrying business combinations are accounted for by applying the purchase value of the investment. It is tested for impairment as described below. method. Goodwill represents the excess of acquisition price over the net fair value of acquired identifiable assets and liabilities arising on Associates and joint ventures with negative equity are measured at acquisition of subsidiaries, associates and joint ventures. In respect USD 0 (nil), unless JL has a legal or constructive obligation to cover of associates and joint ventures, the carrying amount of goodwill is the negative balance of the associate. included in the carrying amount of the investment in the associate or joint venture. 86 J. Lauritzen A/S · Annual Report 2012

Impairment costs for all financial assets not classified as fair value through profit The carrying amount of vessels, vessels under construction, part or loss. owned vessels through investments in joint ventures and associates and goodwill are tested annually for impairment. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and The carrying amounts of other non-current assets, other than deferred receivables are carried at amortised cost using the effective interest tax assets, are reviewed at each balance sheet date to determine method. whether there is any indication of impairment. An impairment loss is recognised whenever the carrying amount of an asset or its cash- Unrealised gains and losses arising from changes in the fair value of generating unit exceeds its recoverable amount. Impairment losses financial assets classified as available-for-sale are recognised in eq- are recognised in the income statement. uity. When financial assets classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the Please refer to note 1 for further disclosure on impairment test. Income statement as gains and losses from available-for-sale financial assets. Inventories Bunker oil is measured at cost according to the FIFO principle. Major Prepayments spare parts purchased and stored ashore for subsequent use are mea- Prepayments recognised under assets include payments relating to sured at cost less individually assessed write-down. Other inventories costs in subsequent periods after the balance sheet date. are recognised at the lower of cost or net realisable value. Equity Financial assets Proposed dividend is recognised as a separate item under equity until JL classifies its investments in the following categories: approved at the Annual General Meeting, where after it is recognised as a liability. Financial assets at fair value through profit or loss (financial derivatives) Liabilities Loans and receivables and Mortgage debt and other interest bearing debt to credit institutions are Available-for-sale financial assets. initially recognised as the proceeds received less any transaction costs incurred. Subsequently, financial liabilities are measured at amortised The classification depends on the purpose for which the investments cost using the effective interest rate method, such that the difference were acquired. Management determines the classification of its in- between the proceeds and the redemption value is recognised in the vestments on initial recognition and re-evaluates this designation at income statement over the lifetime of the loan. every reporting date to the extent that such a designation is permitted and required. Financial assets classified at fair value through profit or Financial liabilities also include lease obligations on finance leases. loss are investments that are measured and reported at fair value in the internal management reporting. Trade payables and other amounts payable are measured at amortised cost. Financial assets at fair value through profit or loss Comprise financial derivatives on which hedge accounting is not ap- Provisions plied and securities which is classified as such on initial recognition. A provision is recognised in the statement of financial position when JL has a present legal or constructive obligation as a result of a past Loans and receivables event, it is probable that an outflow of economic benefits will be re- Loans and receivables are non-derivative financial assets with fixed quired to settle the obligation and it is possible to make a reliable es- or determinable payments that are not quoted in an active market. timate of amount of the provision. If the effect is material, provisions Loans and receivables are included in Trade receivables and Other are determined by discounting the expected future cash flows at a receivables in the statement of financial position. Trade receivables pre-tax rate that reflects current market assessments of the time value and Other receivables are stated at amortised cost less allowances for of money and, where appropriate, the risks specific to the liability. doubtful trade receivables. The allowances are based on an individual assessment of each receivable. Accruals Accruals include prepayments received relating to income in periods Available-for-sale financial assets after the balance sheet date. Available-for-sale financial assets are non-derivatives that are not classified held for trading. They are included in non-current assets unless Corporate and deferred tax management intends to dispose of the investment within 12 months Corporate tax is the expected tax payable on the taxable income for of the balance sheet date. the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previ- Recognition and measurement of financial assets ous years. Purchases and sales of investments are recognised on the settlement date. Investments are initially recognised at fair value plus transaction Deferred tax is provided using the balance sheet liability method, pro- J. Lauritzen A/S · Annual Report 2012 87

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

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

Cash flow statement The cash flow statement has been prepared according to the indirect method and shows the cash flows from operating, investing and financing activities for the year.

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

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

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

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

NEW ACCOUNTING REGULATIONS for future implementation The IASB has issued the following new or revised accounting standards (IAS and IFRS) and interpretations (IFRICs), that are not compulsory for JL in the preparation of the financial statements for 2012: IFRIC 20, IFRS 9-13, IAS 27 (2011) and 28 (2011), Amendments to IFRS 1 and 7, Amendments to IAS 1, 19, and 32.

J. Lauritzen A/S expects to implement the standards and interpretations on effective date as issued by the IASB subject to their endorsement by the EU. None of the new standards and interpretations is expected to have material effect going forward. 88 J. Lauritzen A/S · Annual Report 2012

parent company Income Statement

USD '000 Note 2012 2011

Revenue 11,935 13,785 Staff costs 1 (10,318) (13,581) Other sales and administrative costs 2 (8,326) (10,662) Profit before depreciation (EBITDA) (6,710) (10,458) Depreciations and write-downs 60 (2) Operating income (6,710) (10,460) Financial income 3 46,091 94,717 Financial expenses 4 (106,062) (74,250) Profit/(loss) before tax (66,682) 10,007 Income tax 5 794 4,696 Profit/(loss) for the year (65,888) 14,703

Proposed allocation of the profit: Proposed dividend - - Transferred to other reserves (65,888) 14,703 (65,888) 14,703

Statement of comprehensive income sUSD'000tatement of 2012 2011 comProfit/(loss) for thep yearrehensive income (65,888) 14,703 Other comprehensive income USD '000 2012 2011 Fair value adjustment of hedging instruments during the year (4,786) (18,726) Hedging instruments transferred to financial expenses 9,520 5,594 Profit/(loss) for the year (65,888) 14,703 Fair value adjustment of shares available for sale 818 21,245 Other comprehensive income net of tax 5,552 8,113 Other comprehensive income Fair value adjustment of hedging instruments during the year (4,786) (18,726) Total comprehensive income (60,335) 22,816 Hedging instruments transferred to financial expenses 9,520 5,594 Fair value adjustment of shares available for sale 818 21,245 Other comprehensive income net of tax 5,552 8,113

Total comprehensive income (60,335) 22,816 J. Lauritzen A/S · Annual Report 2012 89

parent company Statement of Financial position

USD '000 Note 2012 2011

ASSETS Machinery, tools and equipment 6 1,399 1,426 Investments in subsidiaries 7 433,453 480,926 Deferred tax assets 5 655 2,642 Shares available for sale 25,331 24,513 Non-current assets 460,837 509,507

Other receivables 8 45,594 13,537 Receivables from affiliated companies 1,012,675 1,025,163 Corporate tax receivables 5 1,713 2,497 Prepayments 2,186 - Securities 157 2,103 Cash and bank deposits 230,366 190,061 Current assets 1,292,691 1,233,360

Total assets 1,753,528 1,742,867

LIABILITIES Equity Share capital 60,633 60,633 Retained earnings 349,109 414,997 Reserves (4,839) (10,391) Equity 9 404,903 465,238

Long-term borrowings 10 1,079,522 1,031,844 Non-current liabilities 1,079,522 1,031,844

Current portion of long-term borrowings 10 64,602 48,180 Trade payables 4,127 4,987 Other payables 54,168 57,513 Debt to affiliated companies 146,207 135,105 Current liabilities 269,103 245,785

Total liabilities 1,348,625 1,277,629

Total equity and liabilities 1,753,528 1,742,867 90 J. Lauritzen A/S · Annual Report 2012

parent company equity statement

Shares Share Hedging available Retained Proposed USD '000 capital instrument for sale Reserves earnings dividend Total

Equity 1/1 2011 60,633 (18,505) - (18,505) 400,294 - 442,422

Profit/(loss) for the year - - - - 14,703 - 14,703 Other comprehensive income: Deferred (gain)/loss on hedging instruments transferred to financial expenses - 5,594 - 5,594 - - 5,594 Fair value adjustment of shares available for sale - - 21,245 21,245 - - 21,245 Fair value adjustment of hedging instruments during the period - (18,726) - (18,726) - - (18,726) Total other comprehensive income - (13,131) 21,245 8,113 - - 8,113 Total comprehensive income - (13,131) 21,245 8,113 14,703 - 22,816 Transactions with owners: Paid dividend ------Total transactions with owners ------Equity 31/12 2011 60,633 (31,636) 21,245 (10,391) 414,997 - 465,238

Profit/(loss) for the year - - - - (65,888) - (65,888) Other comprehensive income: Deferred (gain)/loss on hedging instruments transferred to financial expenses - 9,520 - 9,520 - - 9,520 Fair value adjustment of shares available for sale - - 818 818 - - 818 Fair value adjustment of hedging instruments during the period - (4,786) - (4,786) - - (4,786) Total other comprehensive income - 4,734 818 5,552 - - 5,552 Total comprehensive income - 4,734 818 5,552 (65,888) - (60,335) Transactions with owners: Paid dividend ------Total transactions with owners ------Equity 31/12 2012 60,633 (26,902) 22,063 (4,839) 349,109 - 404,903 J. Lauritzen A/S · Annual Report 2012 91

parent company cash flow statement

USD '000 Note 2012 2011

Operating income (6,710) (10,460) Depreciations and write-downs carried back 6 (0) 2 Adjustments 14,276 (34,909) Change in working capital 7,462 (270,905) Cash flow from operations before financial items 15,028 (316,272) Ingoing financial payments 35,790 35,717 Outgoing financial payments (53,616) (46,411) Cash flow from ordinary operations (2,797) (326,966) Paid corporate tax 5 3,549 182 Cash flow from operating activities 751 (326,784)

Purchase of machinery and equipment 6 - (8) Sale of shares in subsidiaries 649 5,065 Increase of share capital in subsidiaries 7 (1,165) (16,885) Purchase and sales of securities 835 8,217 Cash and cash equivalents pledged as security for debt (22,321) 33,418 Dividend received from subsidiaries - 59,000 Cash flow from investment activities (22,003) 88,807

Instalment on long-term debt (150,872) (277,452) Proceeds from loans 210,029 581,121 Dividend paid - - Cash flow from financing activities 59,158 303,669

Changes for the year in cash and cash equivalents 37,906 65,692 Cash and cash equivalents at beginning of year 190,061 123,678 Currency adjustments on cash and cash equivalents 2,399 691 Cash and cash equivalents at the end of the year 230,366 190,061 92 J. Lauritzen A/S · Annual Report 2012

parent company Notes

NOTE 1 STAFF COSTS NOTE 5 TAX

USD '000 2012 2011 USD '000 2012 2011

Staff costs include: Tax in the Income Statement consist of: Wages and salaries 9,419 12,332 Current tax 2,782 4,729 Pensions (defined contribution plan) 765 869 Deferred tax (1,988) (33) Social security 37 38 Income tax 794 4,696 Contract labour 97 342 10,318 13,581 Effective tax percent 1% -47%

Remuneration to J. Lauritzen A/S' Deferred tax on the Balance Sheet: Exec. Mngt - salaries 3,372 3,541 Deferred tax 1 January 2,642 2,675 Exec. Mngt - long term employment bonus 121 131 Tax on profit (1,988) (33) Board of Directors 548 625 Deferred tax 31 December 655 2,642 4,041 4,297 Deferred tax concerns: Taxable losses carried forward 655 2,642 Average number of employees 63 63 655 2,642 Number of employees at year-end 60 61 Corporate tax payable can be specified as follows: Balance 1 January (2,497) 1,568 Management and a number of executives are members of a bonus Exchange rate adjustments 17 483 and/or severance scheme. Paid during the year 3,549 182 Provision for the year (2,782) (4,729) NOTE 2 OTHER SALES AND ADMINISTRATIVE COSTS (1,713) (2,497)

USD '000 2012 2011 In excess of deferred tax assets recognised as specified above, the parent company have deductible unused tax losses of USD 28m as Total fees to elected auditors 237 601 per 31 December 2012.

Specified as follows: Statutory audit 181 158 Tax advisory services 33 29 Fee for other services 23 414 NOTE 6 MACHINERY, TOOLS & EQUIPMENT

USD '000 2012 2011 NOTE 3 FINANCIAL INCOME Cost as at 1 January 1,631 1,623 USD '000 2012 2011 Additions during the year - 8 Disposals during the year (27) - Interest income on cash and deposits 2,253 3,631 Cost as at 31 December 1,604 1,631 Interest on receivables from subsidiaries 33,487 32,082 Income on financial assets at amortised costs 35,740 35,713 Depreciation and write-down as at 1 Jan. (206) (203) Currency exchange gains and losses, net 9,806 - Depreciation during the year 0 (2) Dividends on shares available for sale 495 - Depreciation and write-down as at 31 Dec. (206) (206) Interest on securities at fair value through P&L 51 4 Dividend received from subsidiaries - 59,000 Financial income 46,091 94,717 Balance as at 31 December 1,399 1,426

NOTE 4 FINANCIAL EXPENSES

USD '000 2012 2011

Interest expenses on loans (56,599) (58,532) Interest on debt to subsidiaries (363) (676) Total expenses on fin. liab. at amortised costs (56,962) (59,208) Currency exchange gains and losses, net - (6,345) Securities at fair value through P&L (1,111) (115) Loss on sale of shares in subsidiaries (602) (8,581) Impairment write-down of subsidiaries (47,388) - Financial expenses (106,062) (74,250) J. Lauritzen A/S · Annual Report 2012 93

NOTE 7 INVESTMENTS IN SUBSIDARIES

Ownership USD '000 2012 2011

Lauritzen Bulkers A/S, Denmark 100.0% 100.0% Lauritzen Kosan A/S, Denmark 100.0% 100.0% Lauritzen Reefers A/S, Denmark 100.0% 100.0% Lauritzen Tankers A/S, Denmark 100.0% 100.0% Lauritzen Ship Owner A/S, Denmark 100.0% 100.0% Lauritzen Tankers Shipowner A/S, Denmark - 100.0% J. Lauritzen Inversiones (Chile) Ltda., Chile 100.0% 100.0% J Lauritzen (Japan) K.K., Japan 100.0% 100.0% J. Lauritzen Singapore Pte., Singapore 100.0% 100.0% KRK 4 ApS, Denmark 100.0% 100.0% Segetrans Argentina S.A., Argentina 100.0% 100.0% ShipInvest A/S, Denmark - 100.0% LB Shipowner A/S, Denmark - 100.0% LB Shipowner II A/S, Denmark 100.0% 100.0% LK Shipowner A/S, Denmark - 100.0% J. Lauritzen Shanghai Co. Ltd., China 100.0% 100.0% LT Shipowner A/S, Denmark - 100.0%

2012 2011

Cost as at 1 January 813,814 810,575 Additions during the year 1,165 16,885 Disposal during the year (1,251) (13,646) Cost as at 31 December 813,728 813,814

Accumulated impairment losses at 1 Jan. (332,888) (332,888) Impairment during the year (47,388) - Accumulated impairment losses at 31 Dec. (380,276) (332,888)

Carrying amount at 31 Dec. 433,453 480,926

NOTE 8 OTHER RECEIVABLES

USD '000 2012 2011

Financial derivatives 11,261 639 Liquidity pledged as security for debt 34,180 11,859 Other short-term receivables 152 1,039 Total other receivables 45,594 13,537

Compared to annual report 2011 bank deposits pledged as security for debt of USD 11.9m has been reclassified from cash at hand and in bank to other receivables.

NOTE 9 EQUITY

Composition of share capital and dividends are disclosed in note 13 in the consolidated statements. 94 J. Lauritzen A/S · Annual Report 2012

NOTE 10 LONG-TERM BORROWINGS

2012 2011 USD '000 <1 year 1 - 5 year > 5 year Total <1 year 1 - 5 year > 5 year Total

Mortgage on vessels (63,893) (570,211) (135,635) (769,739) (48,180) (384,506) (362,022) (794,709) Subordinated loan *) - (159,582) - (159,582) - (166,796) - (166,796) Issued bonds - (212,536) - (212,536) - (116,287) - (116,287) Other debt (709) (1,558) - (2,267) - (2,233) - (2,233) Total long-term borrowings (64,602) (943,887) (135,635) (1,144,124) (48,180) (669,822) (362,022) (1,080,024) Market value of long-term borrowings (1,149,992) (1,081,251) *) The loan is granted from LF Investment ApS and is subordinated to all other debts, liabilities and obligations.

Average Average effective effective Fixed/ Interest rate interest rate, interest rate USD '000 Currency Variable fixation excl. hedging incl. hedging Book value 2012 Mortgage on vessels USD Variable 3-6 month 2.23% 3.54% (683,661) Mortgage on vessels JPY Variable 6 month 2.41% 2.74% (86,078) Subordinated loan DKK Variable 12 month 4.16% 4.16% (159,582) Issued bonds NOK Fix./Var. 3-5 years 10.35% 9.24% (212,536) Other debt DKK Fixed 2-3 year 4.73% 4.73% (2,267) Total 3.98% 4.65% (1,144,124)

2011 Mortgage on vessels USD Variable 3-6 month 2.33% 3.68% (712,642) Mortgage on vessels JPY Variable 6 month 2.40% 2.77% (82,067) Subordinated loan DKK Variable 12 month 4.43% 4.43% (166,796) Issued bonds NOK Fixed 4 years 10.50% 9.85% (116,287) Other debt DKK Fixed 3-4 year 4.73% 4.73% (2,233) Total 3.35% 4.38% (1,080,024)

Currency exposure on non-USD long-term borrowings, net of hedging:

2012 2011

Currency Net currency Currency Net currency hedging Bank exposure on hedging Bank exposure on USD '000 Book value derivaties deposits *) loan Book value derivaties deposits *) loan

JPY (86,078) 14,000 - (72,078) (82,067) - - (82,067) DKK *) (161,849) - 148,614 (13,236) (169,028) - 152,811 (16,217) NOK (212,536) 212,536 - - (116,287) 116,287 - - Total (460,463) 226,536 148,614 (85,314) (367,382) 116,287 152,811 (98,284) JL aims to limit the currency risk by placing funds in DKK deposits.

Interest exposure to floating interest rates:

2012 2011 Total long-term borrowings (1,144,124) (1,080,024) Herof fixed to maturity (128,027) (118,520) Floating interest borrowings (1,016,097) (961,504) Interest rate swaps floating to fixed at year end, nominal 541,957 444,100 Exposure to floating interest rates at year end (474,140) (517,404) J. Lauritzen A/S · Annual Report 2012 95

NOTE 11 FINANCIAL INSTRUMENTS AND FINANCIAL RISKS Financial risks are regularly assessed and prioritized based on how likely they are to occur and their potential impact. As defined by JL’s Financial risks for J. Lauritzen A/S relate to: Board of Directors, overall policies and objectives for financial risks were generally unchanged from 2011. Reference is also made to note 16 to the consolidated financial statements. Liquidity Risk The risk that JL is able to meet its future cash flow needs LIQUIDITY RISK Liquidity risk relates to the risk that JL will not be able to fulfil its finan- Market Risk The risk of losses in financial positions arising from movements in market prices to which JL is exposed cial obligations as they fall due.

Credit Risk The risk of incurring a financial loss if a customer or Below is a maturity analysis of financial liabilities at year-end 2012: counterparty fails to fulfill its contractual obligations

USD '000 Carrying Contractual 2012 amount cash flows <1 year 1-5 years >5 years

Non-derivative financial instruments: Mortgage on vessels, bank debt and other interest-bearing debt *) (1,144,124) (1,315,795) (112,313) (1,051,715) (151,767) Trade and other payables (24,793) (24,793) (24,793) -- Debt to affiliates (146,207) (146,207) (146,207) Derivatives, liabilities at fair value: Forward exchange contracts (1,143) (1,143) (1,143) - - Interest rate and currency swaps (31,835) (31,835) (9,708) (20,485) (1,642) FFA’s and oil contracts (523) (523) (523) - - Total at 31 December 2012 (1,348,625) (1,520,295) (294,687) (1,072,199) (153,409)

2011

Non-derivative financial instruments: Mortgage on vessels, bank debt and other interest bearing debt *) (1,080,024) (1,437,030) (97,276) (975,150) (212,878) Trade payable and other payables (22,292) (22,292) (22,292) -- Debt to affiliates (135,105) 135,105 (135,105) Derivative, liabilities at fair value: Forward exchange contracts (1,688) (1,688) (1,688) - - Interest rate swaps (37,882) (37,882) (9,763) (25,080) (3,039) Total at 31 December 2011 ((11,276,990990)) ((11,363,787787)) ((266 266,124124)) ((11,000,230230)) ((215215,917917))

*) Contractual cash flows include undiscounted interest payments based on interest levels at year end 96 J. Lauritzen A/S · Annual Report 2012

NOTE 11 Continued Assumptions for the sensitivity analysis: MARKET RISKS All hedging instruments assumed 100% effective Market risks are the risk of losses in financial positions arising from Changes in interest rates are global and thus the impact on the fair movements in market prices to which JL is exposed to through finan- value of forward currency contracts and similar derivatives is not con- cial instruments. Market risks are regularly assessed and prioritized sidered based on how likely they are to occur and their potential impact. Based Shares available for sale and shares at fair value through profit or loss on this assessment the following market risks are considered signifi- are not included in sensitivity calculations due to inability to reliably cant for J. Lauritzen A/S: measure the sensitivity of share prices to interest rate changes.

Currency risk - Operational cash flow On financial instruments at fair value the calculated effect after tax based on a 1% decrease in interest rates would affect profit/loss by Currency risk from operations is related non-USD costs where DKK expenses USD (5.4)m (2011: (4.4)m) and equity by USD (8.6)m (2011: USD are the largest contributor. (16.7)m). On financial instruments with variable interest recognized at amortized costs profit/loss and equity would be effect by USD (0.1)m (2011: (2.7)m). Currency risk - Financing

Relates to long-term borrowing in non-USD. JL had at year-end long-term A 1% increase in interest rates would have a corresponding inverse borrowings denominated in NOK, DKK and JPY, ref note 10. effect.

CREDIT RISK Interest rates risk - Long-term borrowings The risks relating to financial counterparties, financial instruments, bonds and cash funds are minimized by trading only with financial 41% of JL’s long-term borrowings are exposed to floating interest rate. institutions with a long-term investment grade credit rating from Moody’s and by defined limits on deposits on each financial partner.

Below is sensitivity analysis of J. Lauritzen A/S’s of the exposure to At year-end 2012, all of our financial counterparties had credit ratings the market risks. Please refer to note 16 to the consolidated financial of or above Baa2. statements for description of managing the risks. J. Lauritzen A/S’s exposure to credit risks at balance sheet date can be Sensitivity information is calculated at balance sheet date and com- illustrated as follows: prises only sensitivity relating to financial instruments, so the amounts disclosed do not necessarily give a complete picture of JL’s risks relating to the different categories of risk. USD ‘000 2012 2011 Currency risk Financial derivatives 11,261 639 To measure currency risk in accordance with IFRS 7, sensitivity is cal- Other short-term receivables 152 1,039 culated as the change in fair value of future cash flows from financial Cash and bank deposits 230,366 190,061 instruments as a result of fluctuations in exchange rates on balance Maximum credit risk 241,779 191,739 sheet date. Sensitivity to fluctuations in non-USD currencies at balance sheet date is based (other things being equal and after tax) on The maximum credit risk corresponds to the carrying value of the in- a 10% decrease in currency translation rates against USD (assum- dividual assets. ing 100% effectiveness) would result in a net profit/loss of USD 5.0m (2011: 5.9m) and affect equity by USD 2.5m (2011: 3.4m). The effect of a 10% increase in the currency translation rates against USD would have a corresponding inverse effect.

Interest rate risk Sensitivity of interest fluctuations is calculated as the hypothetic effect on net profit and equity as a result of fluctuations in interest rates at balance sheet date.

The sensitivity analysis includes financial instruments recognized at fair value for which the calculated effect on equity represents an im- mediate fair value change from a thought change in interest rates and financial instruments with variable interest recognized at amortized costs for which the calculated effect represents a one year effect on net profit and equity based on balances at year end. J. Lauritzen A/S · Annual Report 2012 97

DERIVATIVE FINANCIAL INSTRUMENTS JL’s policy is to use derivative financial instruments to hedge financial risks. At year end J. Lauritzen A/S held the following derivatives:

USD m 2012 2011 Cash flow /Fair value Nominal, Duration, Recognised Nominal, Duration, Recognised hedge USDm month on equity Fair value USDm month on equity Fair value Hedge accouning applied: Currency: USD/JPY Fair value 32.1 0-12 - (0.3) 34.3 0-12 - 0.6 Currency: USD/NOK Cash flow 212.5 29-58 (0.6) 8.5 116.3 41 (3.8) (5.8) Interest rate swaps Cash flow 630.1 21-131 (26.9) (26.9) 444.1 33-139 (28.6) (28.6) Terminated interest rate swap Cash flow N/A N/A 0.6 N/A N/A N/A 0.7 N/A Total (26.9) (18.7) (31.6) (33.8)

Hedge accouning not applied: Currency: USD/NOK N/A (2.1) 0-1 - (0.2) (2.1) 0-1 - 0.0 Currency: USD/EUR N/A 7.5 0-2 - 0.4 - - - - Currency: USD/DKK N/A 27.0 0-1 - 0.7 31.0 0-1 - (1.3) Currency: USD/JPY N/A 2.8 0-1 - 0.4 (2.0) 0-1 - (1.0) FFA's and oil contracts N/A N/A N/A - 0.0 N/A N/A - - Interest indexswap N/A 38.2 39 - (5.0) 38.2 51 - (2.2) Total 38.2 - (3.6) 38.2 - (4.5)

Total derivative financial instruments (22.2) (38.3) Presented in the financial statement as: Other receivables 11.2 0.6 Other payables (33.5) (38.9)

CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES In 2012 fair value adjustment of Level 3 financial instruments amount- The following categories of financial assets and liabilities are recog- ed to USD 0.8m recognised in other comprehensive income (2011: nized in the balance sheet: 21.2m). The fair value adjustment relate to unlisted shares for which a valuation technique has been used to determine fair value. Material

USD ‘000 2012 2011 inputs in the valuation comprise equity value and expected ROE compared to JL’s return requirements. Financial instruments categorized at Level 3 have developed as follows: Fin. assets at FV through P/L *) 11,418 2,741 Loans and receivables**) 1,047,008 1,228,122

Fin. assets available for sale **) 25,331 24,513 USD ‘000 2012 2011 Fin. liabilities - at FV through P/L *) (33,501) (40,209) Fin. liabilities - at amortized cost**) (1,315,123) (1,237,420) Book value at 1 January 24,513 3,268 Fair value adjustment 818 21,245 Book value at 31 December 25,331 24,513 *) Figure includes financial derivatives designated for hedge accounting **) Amounts recognized for financial asset and liabilities at amortized cost do not differ materially from their fair value with the exception of issued bonds. Fair value of issued bonds amount to USD 218.4m whereas the carrying amount totalled USD 212.5m.

Fair value hierarchy With the exception of listed bonds and shares of USD 0.2m (2011: USD 2.1m) (level 1) and shares available for sale of USD 25.3m (2011: USD 24.5m)(level 3), all financial instruments are stated at fair value on the basis of observable market prices (level 2), directly as prices or indirectly derived from prices. 98 J. Lauritzen A/S · Annual Report 2012

NOTE 12 MORTGAGES NOTE 15 EVENTS AFTER THE BALANCE SHEET DATE

USD '000 2012 2011 Early 2013, the owner of J. Lauritzen A/S, the Lauritzen Foundation, decided to convert the two subordinated loans of USD 159.6m to Debt for a total of 769,739 794,709 equity. has been secured by mortgage in assets at the following book values: There have been no other events after the balance sheet date that Vessels owned by subsidiaries 1,433,630 1,308,770 could materially affect the accounts as presented. Cash and cash equivalents 34,180 11,859 1,467,810 1,320,629 Note 16 Accounting policies

The separate financial statements for the parent company are included NOTE 13 CONTINGENT LIABILITIES in the Annual Report as required by the Danish Financial Statement

USDm 2012 2011 Act.

Guarantees undertaken for debt in subsidiaries 194 301 The accounting policies for the financial statements of the parent com- Guarantees undertaken for debt in joint ventures 151 17 pany are unchanged compared to last financial year and are the same Other guarantees re. obligations in subsidiaries 47 - as for the consolidated financial statements with the following addi- Guarantees regarding newbuildings in subsidiaries - 15 tions. For a description of the accounting policies of the group, please Certain claims have been raised against JL. The judgment of the refer to note 26 to the consolidated financial statements, cf. p. 83-87. management is that the outcome of these claims will not have any material impact on JL's financial position. Supplementary accounting policies for the parent company Financial assets NOTE 14 RELATED PARTIES Investments in subsidiaries are recognized in the financial statement of the parent company at cost less accumulated impairment losses. As owners of J Lauritzen A/S the commercial foundation Cost includes fair value of consideration paid plus directly attributable Lauritzen Fonden and its subsidiaries are related parties. acquisition costs. Other related parties with a significant influence of the activities of J. Lauritzen A/S is the company's Board of Directors and the If there are indications of impairment, impairment test is performed Executive management (key management personnel). as described in accounting policies to the consolidated financial statements. Finally, additional related parties comprise subsidiaries and joint ventures in which J Lauritzen A/S has a controlling or significant influence. Subsidaries and joint ventures together with J. Lauritzen's In the income statement dividends received during the year from sub- Shareholding is shown in the group structure on page 102-103. sidiaries are shown under financial income. If the distribution from subsidiaries exceeds retained earnings, the distribution reduces the Transactions with related parties are conducted at arms length cost of the investment in subsidiaries when the distribution is charac- and have comprised the following Income/(expenses): terized as repayment of the parent company’s investment.

USD '000 2012 2011 Tax Management fee, income/(expenses) from J. Lauritzen A/S is subject to the Danish tax regulations included in the group companies 10,787 12,772 compulsory joint taxation with its parent company, the Lauritzen Foun- Management fee, income/(expenses) from dation and all Danish subsidiaries under the Lauritzen Foundation. LF Investments Aps 173 219 Currency hedging income/(expenses) from J. Lauritzen A/S is the managing company in the joint taxation and group companies 2,676 (2,641) Guarantee commission income/(expenses) consequently settles all payment of company tax with the authorities. from group companies 760 811 Tax receivables and tax payables are recognized as current assets and Received dividend from group companies - 59,000 current liabilities respectively. Outstanding tax contributions from oth- Rental and lease income/(expenses) from er companies included in the joint taxation are recognized as receiv- group companies 764 1,104 able/debt from affiliated companies. Rental and lease income/(expenses) from LF Investments Aps (1,649) (2,136) Interest expenses on subordinated loan New accounting regulations for future implemen- from LF Investment (6,888) (7,571) tation

Receivables, debt and interest to and from related parties are Reference is made to note 26 of the consolidated financial statements shown in the balance sheet and notes 3 and 4. There have been no for disclosure of new accounting regulation. None of the new stan- other transactions with related parties other than those stated dards and interpretations is expected to have material effect on the above. Consideration to key management personnel is disclosed in note 1. financial statement of the parent company. J. Lauritzen A/S · Annual Report 2012 99

Note 17 Accounting estimates and judgments

The preparation of the financial statements in conformity with IFRS requires management to make estimates and judgments that affect the reported carrying amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported performance. Management bases its estimates on historical experience and various other assumptions and sources that are believed to be reasonable. Actual results could differ from those estimates.

Material accounting estimates in preparing the separate financial statement for the parent company comprise estimates included in impairment testing of investment in subsidiaries.

Critical accounting estimates and judgments for the group are disclosed in note 1 of the consolidated financial statement.

100 J. Lauritzen A/S · Annual Report 2012

management statement

The Board of Directors and Executive Manage- Group’s and the parent company’s operations and ment have today discussed and approved the an- cash flows for the financial year 1 January – 31 De- nual report of J. Lauritzen A/S for the financial year cember 2012. 2012. Further, in our opinion, the Management’s re- The annual report has been prepared in accord- view gives a fair review of the development in the ance with International Financial Reporting Stand- Group’s and the parent company’s operations and ards as adopted by the EU and additional dis- financial matters, the results of the Group’s and closure requirements in the Danish Financial the parent company’s operations and financial po- Statements Act. It is our opinion that the consoli- sition and describes the material risks and uncer- dated financial statements and parent company fi- tainties affecting the Group and the parent com- nancial statements give a true and fair view of the pany. Group’s and the parent company’s financial position at 31 December 2012 and of the results of the We recommend that the annual report be approved at the Annual General Meeting

Copenhagen, 26 February 2013 EXECUTIVE MANAGEMENT

Torben Janholt President & CEO

Birgit Aagaard-Svendsen Jan Kastrup-Nielsen Executive Vice President & CFO Executive Vice President & COO

Board of Directors * Elected by the employees

Bent Østergaard, Chairman Ingar Skaug, Vice Chairman

Niels Heering Peter Poul Lauritzen Bay

Marianne Wiinholt Søren Berg*

Ulrik Danstrøm* J. Lauritzen A/S · Annual Report 2012 101

independent auditors’ report

To the shareholder of J. Lauritzen A/S nancial statements, whether due to fraud or error. Independent auditors’ report on the consoli- In making those risk assessments, the auditors dated financial statements and the parent consider internal control relevant to the Compa- company financial statements ny’s preparation of consolidated financial statements and parent company financial statements We have audited the consolidated financial state- that give a true and fair view in order to design ments and the parent company financial state- audit procedures that are appropriate in the cir- ments of J. Lauritzen A/S for the financial year 1 cumstances, but not for the purpose of express- January – 31 December 2012. The consolidated ing an opinion on the effectiveness of the Com- financial statements and the parent company fi- pany’s internal control. An audit also includes nancial statements comprise income statement, evaluating the appropriateness of accounting statement of comprehensive income, statement policies used and the reasonableness of account- of financial position, equity statement, cash flow ing estimates made by Management, as well as statement and notes, including a summary of sig- evaluating the overall presentation of the consoli- nificant accounting policies for the Group as well dated financial statements and the parent com- as for the parent company. The consolidated fi- pany financial statements. nancial statements and the parent company fi- We believe that the audit evidence we have ob- nancial statements are prepared in accordance tained is sufficient and appropriate to provide a with International Financial Reporting Standards basis for our opinion. as adopted by the EU and Danish disclosure re- Our audit has not resulted in any qualification. quirements for listed companies. Opinion Management’s responsibility for the In our opinion, the consolidated financial state- consolidated financial statements and ments and the parent company financial state- the parent company financial statements give a true and fair view of the Group’s and ments the parent company’s financial position at 31 De- Management is responsible for the preparation of cember 2012 and of the results of the Group’s consolidated financial statements and parent and the parent company’s operations and cash company financial statements that give a true flows for the financial year 1 January – 31 De- and fair view in accordance with International Fi- cember 2012 in accordance with International nancial Reporting Standards as adopted by the Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed EU and Danish disclosure requirements for listed companies and for such internal control that companies. Management determines is necessary to enable the preparation of consolidated financial state- Statement on board & executive Manage- ments and parent company financial statements ment’s statement that are free from material misstatement, wheth- Pursuant to the Danish Financial Statements Act, er due to fraud or error. we have read the Board & Executive Manage- ment Statement. We have not performed any fur- Auditors’ responsibility ther procedures in addition to the audit of the Our responsibility is to express an opinion on the consolidated financial statements and the parent consolidated financial statements and the parent company financial statements. On this basis, it is company financial statements based on our au- our opinion that the information provided in the dit. We conducted our audit in accordance with Board & Executive Management Statement is International Standards on Auditing and addition- consistent with the consolidated financial state- al requirements under Danish audit regulation. ments and the parent company financial state- This requires that we comply with ethical requirements. ments and plan and perform the audit to obtain Copenhagen, 26 February 2013 reasonable assurance as to whether the consolidated financial statements and the parent com- KPMG pany financial statements are free from material Statsautoriseret Revisionspartnerselskab misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements Henrik Kronborg Iversen State Authorised Public Accountant and the parent company financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated fi- Carsten Kjær State Authorised Public Accountant nancial statements and the parent company fi- 102 J. Lauritzen A/S · Annual Report 2012

overall gROUP STRUCTURE

J. LAURITZEN A/S DENMARK

LAURITZEN BULKERS A/S LAURITZEN KOSAN A/S LAURITZEN TANKERS A/S LAURITZEN OFFSHORE PTE. LTD. J.LAURITZEN DENMARK DENMARK DENMARK SINGAPORE PTE. LTD. 100% 100% 100% 100% 100%

LAURITZEN (USA) INC. GASNAVAL S.A. HAFNIA MANAGEMENT LAURITZEN OFFSHORE SERVICES A/S J.LAURITZEN DENMARK SPAIN SHANGHAI CO. LTD 100% 100% 12% 100% 100%

LAURITZEN (JAPAN) K.K. STAR MANAGEMENT ASS. LAURITZEN SHUTTLETANKERS DENMARK JAPAN SINGAPORE PTE LTD. 100% 30% 100%

AXIS OFFSHORE PTE. LTD. 50%

* * HANDYVENTURE LAURITZEN KOSAN SINGAPORE PTE. LTD. SINGAPORE PTE. LTD. 50% 100%

MILAU PTE. LTD LKT GAS CARRIERS PTE. LTD SINGAPORE SINGAPORE 50% 50%

*Companies owned by J. Lauritzen Singapore Pte. Ltd. J. Lauritzen A/S · Annual Report 2012 103

list of group companies

Company name Country Ownership % J. Lauritzen A/S Denmark - Segetrans Argentina S.A. Argentina 100 Greden Limited Bahamas 100 Labas (Bahamas) Ltd. Bahamas 100 Shoreoff Invest Bermuda Ltd. Bermuda 100 East Gate Shipping Ltd. China 100 J. Lauritzen Shanghai Co. Ltd China 100 Owneast Shipping Limited China 100 De Forenede Sejlskibe I/S * Denmark 43 Freja Polaris A/S * Denmark 49 KRK 4 ApS Denmark 100 K/S Bulkinvest 30 * Denmark 18 K/S Danred I * Denmark 44 K/S Danred II * Denmark 40 K/S Danred III * Denmark 35 K/S Danred V * Denmark 50 K/S Danskib 30 * Denmark 10 K/S Danskib 34 * Denmark 20 K/S Danskib 63 * Denmark 14 K/S Danskib 77 * Denmark 20 K/S Handybulk * Denmark 27 Lauritzen Bulkers A/S Denmark 100 Lauritzen Kosan A/S Denmark 100 Lauritzen Offshore Services A/S Denmark 100 Lauritzen Reefers A/S Denmark 100 Lauritzen Ship Owner A/S Denmark 100 Lauritzen Tankers A/S Denmark 100 LB Ship Owner II A/S Denmark 100 Quantum Tankers A/S *** Denmark 50 J. Lauritzen (Japan) K.K. Japan 100 Star Management Associates ** Japan 30 Lauritzen Shuttletankers Netherlands B.V. The Netherlands 100 Axis Offshore Pte. Ltd. * Singapore 50 Handyventure Singapore Pte. Ltd. * Singapore 50 J. Lauritzen Singapore Pte. Ltd. Singapore 100 Lauritzen Kosan Singapore Pte. Ltd. Singapore 100 Lauritzen Offshore Pte. Ltd. Singapore 100 Lauritzen Shuttletankers Singapore Pte. Ltd. Singapore 100 LKT Gas Carriers Pte. Ltd. * Singapore 50 Milau Pte. Ltd. * Singapore 50 Gasnaval S.A. Spain 100 J. Lauritzen (USA) Inc. USA 100

* Joint venture ** Associated company *** Treated as subsidiary as JL has more than 50% of the voting rights Financial year: Auditors 1 January – 31 December KPMG Osvald Helmuths Vej 4 PO Box 250 DK-2000 Frederiksberg

Head office Owner J. Lauritzen A/S Lauritzen Fonden 28, Sankt Annae Plads 28, Sankt Annae Plads PO Box 2147 DK- 1291 Copenhagen K DK-1291 Copenhagen K Phone: +45 3396 8425 Phone: +45 3396 8000 Fax: +45 3396 8434 Fax: +45 3396 8001 Email: [email protected] Website: www.j-lauritzen.com Website: www.lauritzenfonden.com CVR: 55 70 01 17

China Singapore J. Lauritzen Shanghai Co. Ltd. J. Lauritzen Singapore Pte. Ltd. Unit 2306, Chong Hing Finance Center 1 Harbourfront Avenue No. 288 Nanjing Road West #13-01/02 Keppel Bay Tower Huangpu District, Shanghai Singapore 098632 China 200003 Phone: +65 6275 8000 Phone: +86 21 6358 0066 Fax: +65 6275 7208 Fax: +86 21 6358 0077 Spain Japan Gasnaval S.A. J. Lauritzen (Japan) K.K. PAE Ibarrabarri Kioicho Building 3 A, 3-12 Edificio A-1 Kioicho C/Iturriondo 18 Chiyoda-ku E-48940 Leioa, Vizcaya Tokyo 102-0094 Spain Japan Phone: +34 94 479 5600 Phone: +81 3 3237 7431 Fax: +34 94 416 7316 Fax: +81 3 3237 7858 USA Philippines J. Lauritzen (USA) Inc. Lauritzen Kosan Representative Office Manila 4 Landmark Square, Suite 150 6th floor, Glass Tower Stamford, CT 06901 No. 115 Don Carlos Palanca Jr. Street USA Legaspi Village, Makati City 1229 Phone: +1 203 961 8661 PHILIPPINES Fax: +1 203 964 0350 Tlf: +63 2 856 7929 Fax: +63 2 813 112