| UK. Lloyd's Register Group Executive Chairman reports on year 2006 accounts |
|
|
|
| Friday, 27 October 2006 | |
|
David G Moorhouse: I am very pleased to be able to report that Group income in 2006 rose by a very healthy 14% to £425m. Of the £53m increase over the previous year, £41m resulted from organic growth, with the balance coming from six acquisitions, which I refer to later. The operating surplus, before charitable donations, was £30.0m (2005: £25.3m). After charitable donations of £6.1m (2005: £5.2m), operating profit was £23.9m (2005: £20.1m), giving an operating margin of 5.6% (2005: 5.4%). In the following paragraphs, I comment on trading in each of our businesses and on the non-trading elements of the profit and loss account. Marine revenue increased by 16%. Our share of the world fleet now stands at 18.1% in terms of gross tonnage, a similar position to a year ago. Over 11 million gross tonnes (mgt) came into the Lloyd’s Register classed fleet, which now stands at 128.4 mgt, yet another record in our history. The number of ships on order to Lloyd’s Register class increased to 836 (2005: 718), totalling in excess of 30 mgt (2004: 25 mgt). This strong performance reflects the scope of our global presence, our technical expertise and the excellence of our client service – all appreciated by our international clients. In Korea, on of the world’s leading shipbuilding markets, we have won over 25% by gross tonnage of all newbuilding orders placed over the past 12 months. We received a prestigious order, for seven ice-classed 1A FS chemical tankers including winterisation specification requirements for the ships to operate at -25°C, at STX Shipyard. We continue to be the leading classification society in Greece, where our market share now stands at 27% and have experienced strong growth in the Middle East, where we won contracts to class six Vela VLCCs and eight container ships, all to be built in Korea. In Canada, we won a significant contract with the Canadian Department of National Defence for a wide range of technical services for the Joint Support Ship (JSS) procurement project. It is the first Canadian government project to use our Rules and Regulations for the Classification of Naval Ships and we were selected because of the maturity of our Rules and the strength of support we could offer throughout the life of the project. China continues to emerge as a major driving force in the industry. Over the past 12 months the amount of tonnage on order, or under construction, to Lloyd’s Register class in China has increased from 4.0 mgt in June 2005 to over 5.2 mgt in June 2006, including our first VLCC order (for three 316,000 dwt vessels) in Shanghai’s Waigaoqiao Shipyard for a Singaporean owner. The ships are likely to be among the first Common Structural Rules (CSR) compliant VLCCs when they are delivered in 2008/9. In support of the growth in China, we have substantially expanded our local resources and capability. This has included the planned expansion of our technical capability in Shanghai to include design support services to help shipowners and shipyard designers to deal with new developments impacting ship design such as the common structural rules for tankers and bulk carriers. We continue to reinforce our market-leading position for the classification of liquefied natural gas (LNG) ships. In 2005/06, we won further contracts for large LNG ships, including the Qmax gas carriers to be built in Korea at SHI and DSME, the largest gas ships ordered to date. We continue to invest in research and development activities which, together with our technical expertise in the future of the container ship sector, helps the industry to push the boundaries of ship design and size, while maintaining safety. In 2006, one of the world’s largest container ships, the 9,600 teu Xin Los Angeles, was delivered to Lloyd’s Register class out of SHI in Korea. Our activities in ice and cold operations have been in support of trade out of Northern Russia. We are the leading provider of Green Passports, documents that contain an inventory of all the materials onboard a ship that require careful handling or special awareness. The record accompanies the ship throughout its life and is updated as necessary. At the end of a ship’s life, it helps the ship recycling yard to formulate a safe and environmentally friendly way of decommissioning the ship. Together with Shell, we have led the way in the application and adoption of the Green Passport and, in 2006, the final ship in Shell’s LNG fleet of 25 carriers was issued with its Green Passport. Recognising the importance of, and growth in, the passenger cruise ship market, we continue to develop the services we are offering from our Passenger Ship Centre in Miami. This modern facility offers clients a single point of contact and rapid response in areas such as plan approval, Rule interpretation and training. Our clients recognise our expertise in this area, which is why Lloyd's Register continues to be, by some margin, the leading classification society in this market sector. We won a major contract for survey work in the UK for the three nuclear submarines under construction together with a contract to undertake all plan approval work for the new generation of aircraft carriers to be built in the UK. This is the first time we have been involved with the survey of submarines and we are the first class society to be involved with nuclear submarines. During the year we have further developed our collaborative relationship with the University of Southampton (UoS) to a point where we have announced our plan, subject to planning permission, to enter into a joint development on an existing UoS site with the intention of relocating all of our London Marine operations and London-based global Marine business specialists to Southampton by the end of 2009. As well as providing an excellent location for our employees to work, this move will facilitate even closer co-operation with UoS in the fields of research and training and will allow us to offer state of the art training facilities for our global clients. At the same time, we are developing closer relationships with a number of academic institutions in Asia to broaden and deepen our research into key aspects of the global marine business. Our Management Systems business, LRQA (Lloyd’s Register Quality Assurance), grew its revenues by 9%, in line with its long term growth trend following last year’s small decline. Reflecting our ongoing commitment to providing all clients with services that enable them to derive maximum benefit from their systems, LRQA introduced ‘business assurance’, a new, dynamic approach to the independent assessment of management systems. This unique approach, which benefits all parties that rely on certified systems, is attracting increased support from our clients. Business assurance is essentially about using systems to improve operational effectiveness and manage risk. At its heart is the belief that, when applied well, management systems help to improve business performance in a quantifiable way. By understanding what really matters to organisations and their stakeholders, LRQA is helping clients to improve their systems, and businesses, simultaneously. Business assurance sets out to bridge the common gap between the management system and the business system. This reflects the true intent of quality, health, safety and security assurance standards and ensures they deliver the benefits they were designed to offer. For our clients, 2005/6 was a demanding year, particularly in the area of environment assurance, where national and international rules and regulations changed markedly. The environment is arguably the single greatest challenge facing global businesses today. In Europe, LRQA geared up to support all those whose businesses were impacted by the EU Emissions Trading Scheme. Across Asia, we worked with Korean, Japanese and Indian clients, at a local level, to support projects falling within the scope of the UN’s Clean Development Mechanism and the Joint Initiative. In May, LRQA chaired the Cologne Carbon Expo session on greenhouse gas monitoring and verification. Growth of our environmental assurance services was further reinforced by the conclusion of the ISO 14001:2004 transition, especially in Asia, where LRQA’s share grew above the market rate reflecting our local knowledge and continued investment in these rapidly expanding economies. For example, in November 2005, Nippon Television Network Corporation (NTV) obtained ISO 14001 approval from LRQA Japan followed, in April 2006, by ISO 27001 approval for information security management. Known locally as ‘Channel 4’, NTV is one of Japan’s major broadcasting companies. It was one of the first organisations of its kind to achieve ISO14001 certification, reflecting its commitment to increasing environment awareness and promoting sustainability. Early in 2006, one of China’s biggest shipyards, Shanghai Shipbuilding Co. Waigaoqiao shipyard, was awarded LRQA approvals for quality and environmental management systems. A part of the China State Shipbuilding Corporation, Waigaoqiao is rapidly expanding its capabilities and establishing its credentials as a global shipbuilder, serving the marine and offshore oil and gas production markets. Our Energy & Transportation income rose by 17% overall, assisted by acquisitions, most of which fall into this business area. Organic income growth was 7%. Energy & Transportation consists of three sectors - Oil & Gas, Industry and Rail. Oil & Gas recorded income up 31% year on year overall with significant growth in the Americas, the Middle East and the Caspian. As well as a number of smaller projects worldwide, we won significant independent verification and validation work in the UK, Canada, Qatar, Kazakhstan, Malaysia and Vietnam, as well as integrity management and risk based inspection (RBI) in the US, UK, Malaysia and Trinidad, The acquisition of Capstone Engineering Services and its world class RBMI™ software has helped us maintain a leading position in this field. Many of the new projects won were for floating production or storage systems. Industry income was 6% up on the previous year. Our core business of certifying pressure vessels and other equipment to a variety of codes, including ASME, PED and IBR, continues to grow as manufacturing develops in Eastern Europe and Asia. We have also seen significant growth in a variety of asset management services. A number of utilities world-wide are now using Lloyd’s Register for certification to the new PAS55 Asset Management Standard. Many process industries are considering moving from time based in-service inspection to RBI. With the acquisition of Capstone’s RBMI™ software we are in a good position to help plant owners with this technology and we are establishing RBI operating centres in the America, Europe and Asia. We participated actively in the UK Government’s recent Energy Review and continue to be active in the inspection of new build and in service nuclear equipment and in fuel cycle verification. The decision by the UK government to accelerate the decommissioning of the current reactor fleet, and the likely decision to build new reactors, should lead to increased opportunities for us. Rail income rose by 12%, assisted by acquisitions, but also due to organic growth across our operations. We now believe we offer an unrivalled combination of geographic coverage and services, in areas such as rolling stock, signalling, risk management and consultancy. In the past year, we have won a contract to provide reliability, availability, maintainability and safety (RAMS) assurance services to the prestigious $245 million Palm Jumeirah monorail system project in Dubai. Working closely with Marubeni, the contractor responsible for the design, manufacture, construction, installation and commissioning of the civil engineering works, stations and electrical and mechanical systems, we ensure that the 5km long dual track system meets its RAMS objectives and is safe for operation. We were also appointed as the safety case authors and RAMS specialists to Hitachi for the Channel Tunnel Rail Link Domestic Stock Project, which is the UK’s largest current heavy rail rolling stock project. There were six acquisitions during the year. Odegaard & Danneskiold-Samsoe, a Danish noise and vibration specialist, and the Houston-based Capstone Engineering and Capstone Software, together a world leader in RBI software and consultancy, were acquired last September. Late last year we acquired two companies in Australia, Bluefield and Belrose, expanding our presence in the rail and risk management sectors. BSL, a leading German transport planning consultancy, was acquired at the beginning of 2006. Lastly, we acquired the Incert group of companies in the Netherlands, a specialist in the accreditation of educational establishments and courses. In all instances, we have plans, over the medium term, to benefit from combining the expertise which these businesses bring to the Group with the opportunities that our global network provides to expand their offering into new markets. Investment income increased to £30.2m (2005: £16.7m). The majority of this increase relates to gains on realised investments in our equity portfolio, which rose to £13.9m (2005: £4.1m). We also benefited from higher rental income from letting additional space to third parties, and from returns on the additional funds invested in a bond portfolio at the end of 2005. Interest income on our cash balances fell slightly following our investments in acquisitions and our contributions to the various pension plans, detailed below. Our net cash balance at the end of the year was £89m, compared with £118m a year earlier. With some £48m of one-off pension contributions and £14m in acquisitions, the underlying cash generation was £33m. Working capital continued to be tightly controlled during the year, after marked improvements in previous years. Gross work-in-progress and gross debtors combined remain at just over three months’ income. Pensions continue to be a material issue for the group. On the FRS17 basis of reporting, which we adopted last year, the net pension liability has decreased from £300m at the end of 2005 to £225m at the end of this year. Of the £75m reduction in the deficit, £35m relates to an exceptional contribution to the UK scheme and a further £15m to the funding of past service liabilities in a number of overseas countries, in respect of schemes which have, until now, been unfunded. The remaining decrease in the deficit arose largely from changes in actuarial assumptions, principally the bond yield which is used to discount the value of the scheme liabilities. Going forward, the Group continues with its £6.6m additional annual contribution into the UK pension fund to reduce the deficit, which it is hoped will be eliminated in less than 10 years. We have committed £6.1m out of this year’s surplus for charitable donations, an increase of almost £1m over the amount donated last year. £6m of this has been donated to the Lloyd’s Register Educational Trust. In addition to the significant commitments made in previous years, both in the UK and overseas, the Trust has continued to grant monies on new applications which fall within its remit, which is the advance of education of the public in the areas of science, engineering and technology. On July 1, 2006, Richard Sadler, who worked for the Group from 1979 until April 2004, rejoined us as Operations Director, Europe, Middle East & Africa, and as an executive director of the Board. I would like to welcome Richard back to the Group and record my thanks to David Rule, whom Richard succeeds, who retired on June 30 after 36 years of outstanding service. I am delighted that David has agreed to continue to make his expertise available to Lloyd’s Register on a consultancy basis The success of Lloyd’s Register is greatly influenced by the support of its governing body, now known as the General Committee of Trustees, the non executive directors and all the sub-committees and country committees, without which we could not achieve the reported results. I would like to thank them all for their individual and collective support. This has been a particularly arduous year from a governance point of view as we have made a number of changes to the corporate structure, to better reflect the respective roles of the corporate support organisation and the operating subsidiaries, with the creation of a new ultimate parent organisation – Lloyd’s Register Holdings. None of these changes has had any impact on the way we serve our clients. Finally, I would like to thank all our employees for their outstanding support, effort and application to the task of ensuring we make a difference to the safety of life throughout the world. David G Moorhouse |
|
| Last Updated ( Friday, 27 October 2006 ) |
| < Prev | Next > |
|---|