Lauritzen Kosan A/S

Management report 2013Lauritzen Kosan A/S is a leading carrier of liquefied gases, including petrochemical gasses such as ethylene, energy gases (LPG) and ammonia.This report includes only the financial statement for Lauritzen Kosan A/S. A report for JL Group's total gas carrier activities can be found in the annual report for the parent company J. Lauritzen A/S.The result for 2013 was USD 3.7m, down from USD 7.7m in 2012 mainly due to weak market conditions for smaller gas carriers in Q4 2013. The result included USD 4.0m in gains from the sale of a fully pressurized 4,000 m3 gas carrier compared to USD 3.9m gains reported in 2012. The result is regarded as less satisfactory.

Main eventsDuring 2013, we completed a restructuring process for our commercial, operational and technical departments. This will improve organisational efficiency and provide us with the ability to understand and meet client expectations better.The REJUICE initiative, started in 2012 with the aim of reducing fuel consumption and emissions, continued in 2013 with a focus on systems for optimising trim and ballast, the installation of controllers to minimize power consumption, improved voyage planning and general fleet utilization. Read more about these initiatives in our Corporate Responsibility Report 2013.Global market developmentsTowards the end of the year spot market rates for 3-10,000 m3 gas carriers receded which meant that for the second year in a row, average spot market rates declined, albeit only marginally.Newbuilding and secondhand tonnage prices were stable during the first six months of the year but saw a slight improvement during the second half.Demand for gas carriersAfter somewhat meagre demand growth for gas carriers 3-23,000 m3 in 2012, partly due to the tightening of sanctions against Iran, recovery depended on the availability of petrochemical gases in the Middle East Gulf and resumption of growth in Europe. Both turned out to be disappointing, and only the increased supply of LPG mainly from the USA provided some support for the modest growth in demand seen in 2013.All petrochemical gases save for VCM (Vinyl Chloride Monomer) and propylene saw reduced volumes shipped in 2013. The reduced availability of ethylene from the Middle East Gulf with reduced demand for butadiene from the USA (squeezed by rising imports of tyres after a fall in tariffs in second half 2012) had a significant impact on 5-9,000 m3 gas carriers. Propylene volumes increased benefitting mostly the 17-23,000 m3 gas carrier market. Despite strong demand growth in transportation of VCM, levels were still below those of 2009-2011.Supply of gas carriersDeliveries of gas carriers in the 3-23,000 m3 segment amounted to 250,000 m3, up 30,000 m3 compared to 2012, whereas demolitions amounted to approximately 50,000 m3, down from 80,000 m3 in 2012. Net deliveries amounted to 200,000 m3, of which 35% were fully pressurized with the balance being semi-refrigerated. Close to 70% of the semi-refrigerated newbuildings were constructed for the carriage of ethylene. At year-end 2013, the global carrying capacity amounted to 4.9m m3 up 4.5% from year-end 2012.One notable feature of net additions to the world fleet during the year was the large proportion to the 12-23,000 m3 segment.Ordering was on a rising trend during 2013. At year-end, the order book amounted to 21% of the existing fleet of which 10% is aged 25 years or more, cf. Figure 13. Practically all gas carriers on order are for delivery in 2014-2015 and approximately half of these are for ethylene carriers.Lauritzen Kosan’s fleetLauritzen Kosan operates with a high proportion of coverage for the fleet through cargo contracts and time charter contracts.Lauritzen Kosan A/S’s fleet comprised 14 fully owned vessels at year-end against 14 at year-end 2012.Fleet managementLauritzen Kosan Fleet Management (LKFM) is responsible for technical management of the majority of the owned fleet. During 2013, three fully pressurised vessels, previously managed by a third party, were taken into technical management and three more are expected to be enrolled during the first half of 2014, increasing the pool of technically managed vessels to 27 vessels by LKFM. Star Management Associates, Tokyo, in which Lauritzen Kosan has a 30% holding, handles the technical management of the remaining fleet of fully pressurised vessels.The ever-changing regulatory agenda is setting an increasingly demanding scene for ship management both in terms of complexity and costs, and LKFM is continuously noting these and preparing and investing for the future. Issues such as ballast water management systems and emissions reduction efforts are being assessed in order to ensure that the fleet is always fully compliant and geared to support our environmental efforts.Our aim is to have effective standards of maintenance emphasizing safety performance and protection of the environment within defined guidelines. So learning from operational incidents and near-misses is an ongoing aspect of the improvement process and for achieving compliance with international rules and regulations as well as client expectations.In order to maintain the ability to obtain customer acceptability for any commercial nomination, a total of 138 vetting inspections were performed in 2013 (156 in 2012). On average, 4.4 observations were received, down from 5.3 in 2012. Crew-related observations continued to decline, from 2.3 in 2012 to 1.8 in 2013.Our organization systematically identifies clients’ priority areas and takes the actions necessary to meet their requirements. As a result, we have successfully reduced the commercial implications originating from the vetting regime to a minimum, as evidenced by only having one inspection from inspecting companies in 2013 compared to six in 2012.During 2013, we upgraded our IT infrastructure, linking ship and shore crew databases, which will allow users to access one system for Safety/Quality, Technical and Procurement operations from 2014. Consolidation into one system will provide an improved overview of fleet performance and enhance management’s ability to compare performance and identify early deviations.Development in operations and financial mattersIncome statementRevenues totaled USD 145.7m compared to USD 169.0m in 2012.Total costs of vessels incl. hire of chartered vessels amounted to USD 93.6m compared to USD 113.3m in 2012. Office and fleet staffing costs and other sales and administrative costs totaled USD 31.0m compared to USD 33.2m in 2012.Net gains on sale of vessels amounted to USD 4.0m compared to USD 3.9 in 2012.Depreciations and impairment losses amounted to USD 17.9m compared to USD 18.3m in 2012.Result from subsidiaries and associated companies amounted to USD (1.3)m compared to USD 0.9m in 2012.Net financial costs amounted to USD (2.2)m (USD (1.2)m in 2012).Result before tax was surplus of USD 3.7 down from USD 7.7m in 2012.The result for the year was a surplus of USD 3.7m down from USD 7.7m in 2012.Balance sheetAt year-end 2013, total assets amounted to USD 308.6m compared to USD 324.3m in 2012.The carrying amount of vessels of USD 193.3m at year-end 2013 (2012: USD 204.2m) is on regular bases compared with recoverable amount. If the recoverable amount is lower than the carrying amount the vessels are written down. The carrying amounts of vessels are at level with or lower than the average broker valuation.At year-end 2013, the total equity amounted to USD 259.3m, corresponding to an equity ratio of 84.0% compared to USD 254.9m and 78.6% end of 2012.At year-end 2013, total liabilities amounted to USD 49.2m compared to USD 69.4m end of 2012.