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| Report by the Boards of Directors and Management JL recorded a net result of USD 76.2 million compared to a deficit of USD (32.4) million in 2002, which included a write-down of USD (15.5) million. The very satisfactory result for 2003 is better than expected. EBITDA was USD 71.6 million, up USD 49.5 million on 2002, due primarily to the bulk fleet strategy that enables Lauritzen Bulkers to take full advantage of significant increases in dry cargo bulk rates. Unlike 2002, the weaker USD had a negative impact on the result. The net result includes a net tax effect of USD 30.5 million, primarily deriving from revaluation of the deferred tax assets. At year-end 2003, equity amounted to USD 238.3 million, up USD 83.6 million on the year-end 2002 figure of USD 154.7 million. Solvency ratio increased from 38% at 31 December 2002 to 45% at 31 December 2003. The total assets increased from USD 411.1 million at year-end 2002 to USD 532.7 million at the end of 2003.  * Figures for 2001 and earlier have been translated from DKK to USD. Figures for 2000 and earlier have not been adjusted in line with current accounting policies. Political uncertainty due to the situation in the Middle East and the ensuing Iraq war as well as the outbreak of SARS restricted economic activity globally however, at the same time, supported fairly stable developments in the shipping markets in which JL operates. High, volatile oil prices also had an impact on JL's financial results. During the second half of 2003, consumer and investor confidence improved, leading to stronger growth in general, however with Europe trailing behind, which kept the regional gas market in check. Very strong investments in housing, in infrastructure, in steel mills etc. in China paved the way for increased demand in shipping markets that made rates in most markets soar. JL was positioned to take advantage of this development, although the strength of the markets had not been foreseen. The vigour of the freight markets has injected new life into the market for tonnage in which JL has taken an active part, having already experienced appreciating rates. A number of important strategic business activities were accomplished during 2003: · Lauritzen Bulkers continued to re-build a fleet of their own and initiated an investment programme comprising: - Two second-hand bulk carriers delivered in the last quarter of 2003. - Two second-hand bulk carriers to be delivered in the first quarter of 2004. - Three newbuildings to be delivered in 2005, 2006 and 2007. · A new business area was added to JL's business portfolio - Lauritzen Tankers. Through Quantum Tankers which JL acquired as of February 6, 2004 and in close collaboration with Mitsui and Vitol, JL has chartered two 60,000 cbm product tanker newbuildings for delivery in 2006 and 2007. · At the end of 2003, LauritzenCool entered into a long-term tonnage sharing agreement with NYK Reefers, Japan, in order to ensure optimal utilization of their combined reefer fleets. At the same time, an additional agreement was signed, by which NYK Reefers acquired 50% of LauritzenCool Logistics. · During 2003, LauritzenCool Logistics further developed its multi-destination door-to-door logistics services and increased their international presence with the acquisition of BrasReefer (Brazil) and Universal Freight Forwarders Ltd. (Seattle, USA) and by opening up offices in Costa Rica and Uruguay. · The LauriTen 50/50 joint venture between Lauritzen Kosan and Tsakos Energy Navigation Ltd. (TEN) was dissolved by mutual agreement in August 2003. The four semi-refrigerated, jointly owned, gas carriers were subsequently purchased by Lauritzen Kosan. EBITDA for reefer business was USD 21.8 million compared to USD 14.8 million in 2002. Pre-tax result was USD 6.5 million, up USD 13.7 million on the 2002 deficit of USD (7.2) million. The result was influenced by higher freight rates and the sale of three 265,770 cbft reefer vessels, which were a size below that used for the core reefer vessel business. Two long-term chartered vessels, both of which were redelivered at year-end 2003, had a negative impact on results. During 2003, average spot market rates increased by about 20% on 2002 rates for larger specialized reefer vessels. However, LauritzenCool's pools did not fully benefit from this due to high level of cargo coverage relating to the usual trading systems dating from late 2002. The upswing was due to several different factors; cargo volumes, the Russian winter with thick ice keeping vessels off the market, USD/EURO exchange rates and changes in free trade agreements, just to mention a few. Another factor was the continuing slow decrease in the world fleet of specialized reefers. Stiff competition persisted in all the perishable goods markets in 2003 but it also gave more business to LauritzenCool's container business. As in 2002, all the activities associated with selling and purchasing second-hand reefer vessels meant higher vessel values in 2003. A number of pool partners in LauritzenCool decided to sell their vessels at increased values resulting in vessels leaving the pool. However, LauritzenCool's position was markedly strengthened with its collaboration with NYK on tonnage sharing, logistics and other reefer activities. EBITDA for Lauritzen Kosan was USD 7.5 million, down USD 1.1 million on 2002. The ordinary result before tax was a deficit of USD (8.2) million compared to USD (28.3) million in 2002, which included a write-down of USD 15.5 million. The reduction in EBITDA primarily related to changes in fleet composition, restructuring costs and the weaker USD. The market for smaller gas carriers proved as difficult as forecast. The fact that the European economies did not show any significant growth in 2003 also affected results. Demand for petrochemical products remained flat resulting in little demand for sea transport for petrochemical gases. Trading conditions improved during 2003 but not enough to provide acceptable earnings for the short sea gas carrier fleet. While waiting for trading conditions to improve, Lauritzen Kosan actually succeeded in strengthening its market position. Lauritzen Kosan has also changed its flagging policy and adopted a more efficient, USD-based cost structure. Supply of gas carriers in the segment up to 10,000 cbm increased by 2.4% although this was down 1.5% point on 2002. The increase was mainly due to larger gas carriers in the segment. Based on the current order book, only a limited number of vessels will be delivered in the next two-three years. EBITDA for 2003 for Lauritzen Bulkers was USD 39.9 million, up USD 41.1 million on 2002. Operating profit before tax was USD 41.2 million compared to a deficit of USD (1.6) million in 2002. As expected, the bulk market gradually recovered and the market reached an historically high level by year-end, with market strength being mainly driven by unprecedented demand from China and very little extra supply. During 2003, Lauritzen Bulkers took advantage of attractive offers for vessel purchases and will in future continue to strengthen its ownership profile alone or with partners. During the course of 2003, JL controlled a fleet of 165 vessels on average. Together with associates JL operated a total fleet of 217 vessels on average. At the end of the year, JL wholly-owned 31 and part-owned two vessels. 
A total of 43 ships in the fleet are on charter for periods exceeding 12 months. JL has purchase options on ten bulk carriers and four reefer vessels on long-term charter. In 2003, JL employed an average total staff of 1,011 of whom 553 worked on the Company’s own vessels or on bareboat-chartered vessels. (2002: 1,041 and 566 respectively). At the end of the year, 997 people in all were employed against 990 year end 2002. Prospects for 2004 The upswing in world trading conditions noted during the last part of 2003 is expected to accelerate in 2004. Financial policy has led to a significant rise in economic activity in USA. American consumers will be continuing to support high and rising levels of imports, especially from the USD denominated part of the world. The main beneficiaries will be South America and Asia, whereas with the stronger EUR, Europeans will receive less support for economic activity from the USA. Although domestic demand is picking up in the Euro zone, the rate of progress is relatively weak which means that GDP growth is forecast to rise by only 2%, although the trend is upwards. Exports of perishables, particularly from Latin America, may enjoy improved market conditions in Europe due to lower USD vis-à-vis EUR and JPY. The dynamism of China and the interventionist policies of the Bank of Japan in the currency markets both contribute to aiding Japanese exports. This should give some support to GDP growth, which is forecast at slightly below 2%. After a year with very strong growth, most of which was due to investments in infrastructure, machinery and construction, China is forecast to continue its strong growth though at a slightly slower pace and with increased focus on consumption. In general, the rate of inflation will remain low but will rise due to increasing commodity prices. Economic policies will therefore generally move towards a more neutral stance, implying that world trade is set for another year of strong growth. So the risk of congestion and other inefficiencies in goods transport will remain, underpinning the strength of shipping markets. The introduction of the ISPS (International Ship and Port Security) code on 1 July 2004 may add to this. Whereas demand for regional gas transportation in Europe is likely to only improve moderately, JL’s two other business areas, reefer and bulk, face more buoyant prospects in 2004. Changes in exchange rates and oil prices will affect results, too. In 2004, EBITDA is expected to increase significantly due to improved trading conditions in all three business areas, particularly for Lauritzen Bulkers. Net result is expected to increase, although not as much as EBITDA due to increases in deferred tax included in the net result for 2003. |