Transatlantic was formed during the year through the merger of B&N Nordsjöfrakt and Gorthon Lines. A new operative structure and organization were established. The new brand and a new profile were introduced.

The Dry Cargo division was divested and the Group's performance is focused on the continued development of its divisions, Transatlantic Services, European Services and Icebreaking/Offshore.

 

The full-year results imply a significant improvement compared with pro forma results for the preceding year, confirming earlier forecasts. Net profit was SEK 314 M (98).

The offshore market remained strong and earnings improved during the fourth quarter, while the trend of earnings for European Services was somewhat weaker than in the preceding year.

 

During the year, Transatlantic services were adversely affected by the
industrial action in Finland, the volume decline for paper and, particularly
during the fourth quarter, by operational disruptions on vessels.

 

The Group's operating profit for the fourth quarter amounted to SEK 5 M (total in the preceding year SEK 31 M, and for comparable units, SEK 17 M).
Net earnings for the quarter after restructuring and merger items, and before tax, amounted to a loss of SEK 15 M (profit: 25).

 

The consolidated financial position improved significantly.

 

A dividend of SEK 1.00 per share has been proposed, as well as a bonus dividend of SEK 1.00 per share. In addition, it is proposed that a repurchase for shareto be introduced.

 

Consolidated operating profit for 2006 is expected to improve compared with the 2005 results.

 

Results for January-December 2005 (Sales and income values for 2005, including The Dry Cargo division that was divested during the year. Pro forma for preceding year in parentheses)
Net revenue: SEK 2,481 M (2,652)
Operating profit: SEK 123 M (103)
Profit before tax: SEK 337 M (97); Earnings per share: SEK 10.90 (3.10)
Profit after current tax: SEK 336 M (98); Earnings per share: SEK 10.90 (3.20)
Profit after full tax: SEK 314 M (98); Earnings per share: SEK 10.20 (3.20)

On December 31, 2005, shareholders' equity per share amounted to SEK 36,80
(24.80 pro forma at end of 2004)
The equity/assets ratio at the end of the period was 40% (26% at December 31, 2004).

 

Transatlantic's operations, goals and strategy
Rederi AB Transatlantic was formed at the beginning of 2005 as a result of the merger of B&N Nordsjöfrakt AB and Gorthon Lines AB.

 

Transatlantic conducts shipping operations, focused on industrial shipping, in an organization that, after the divestment of the Dry Cargo operations, comprises three divisions: Transatlantic Services, European Services and Icebreaking/Offshore. Transatlantic and European Services specialize in contract shipping, primarily for the forest products and steel industries. The operations of the Icebreaking/Offshore division are based on combination vessels on long-term contracts and guaranteed income from icebreaking, in addition to other deployment, mainly for rig-relocation in the offshore market.

 

Transatlantic's business concept is to market, develop and deliver the market's most efficient transport solutions in close and active cooperation with customers.

 

Transatlantic's goal is to be the market leader in its segments, with profitability that generates a favorable return for the company's shareholders. The goal is a return of 12% on shareholders' equity and an equity/assets ratio that does not fall below 30%.

 

Transatlantic's Board of Directors has established the Group's strategy for the next few years. In particular, this emphasizes growth and sustainable profitability within the framework of the organization that the Group now has after the divestment of the dry cargo operations. Growth will be achieved both organically and through acquisitions. The Group is also very open toward the development of various partnerships aimed at broadening operations or implementing various investments and projects.

 

The ambitions for growth will require investments in new tonnage and replacement tonnage. These include all divisions and will be conducted without jeopardizing the Group's financial targets. It also means that the Group's tonnage requirements will partly be resolved through charter contracts and by external investors becoming wholly or partly involved in the fleet operated by the Group.

 

The strategy for and development of the Group place major demands on quality, safety and the environment, as well as awareness of customer demands and a willingness to change.

 

 

 

General developments in 2005

 

The 2005 fiscal year was characterized by extensive activity in Transatlantic. The merger of B&N Nordsjöfrakt and Gorthon Lines was concluded, while a new operating structure and organization were established for the resulting combined operation. A new brand and a new profile were introduced, and an extensive training program was launched to establish the Group's vision, goals and strategies, as well as common values.

 

The divestment of the Group's Dry Cargo division resulted in a substantial injection of liquid funds, placing the Group in a position to improve its financial structure. Interest-bearing liabilities were reduced through additional amortization of loans, while the Group's loan portfolio was renegotiated. As a result also of changes in ownership and the leasing of tonnage, the financial key ratios and the Group's liquid funds developed favorably.

 

Having modified its operational and financial platform, the Group is now in a position to improve its profitability and continue its expansion in accordance with the plans established during the year by the Board of Directors of the Group.

 

In line with previously announced forecasts, consolidated earnings for the year imply an improvement over pro forma earnings for 2004. The earnings scenario was negatively impacted, however, by a number of disruptions in the fourth quarter, among which the breakdown of a number of older vessels and volume reductions for paper contributed to the weak earnings reported for the quarter.

Measures have been taken to reduce risk exposure referring to older vessels, while the volume of paper products has risen steadily during the first part of 2006.

 

General developments during the fourth quarter

 

The period was characterized by continued strength in the shipping economy. Demand in Transatlantic's segment was mixed, including ongoing strength in the markets for Offshore and European Services, while Transatlantic Services were affected negatively by significant disruptions in the transport of newsprint from Canada to Europe.

 

In the Transatlantic Services division, the volume of newsprint from Canada declined mainly because one large supplier temporarily halted its deliveries to Northern Europe. The division was also negatively affected by heavy costs resulting from the breakdown of several of the division's older vessels during the period.

Earnings deteriorated significantly compared with the corresponding period in the preceding year.

 

In the European Services division, the trend in scheduled services was slightly weaker than in the preceding year, while bulk operations improved. Scheduled traffic for forest products developed according to plan.

 

Within Icebreaking/Offshore, demand for tonnage was favorable, although this period is usually seasonally the weakest in the year. Earnings improved significantly compared with the preceding year.

The Group's operating profit for the third quarter amounted to SEK 5 M (31). The figure for the preceding year includes SEK 14 M pertaining to the Dry Cargo division, which was divested during the second quarter of 2005.

 

During the period, the special merger item relating to the reversal of negative goodwill in accordance with IFRS was negatively affected by a total of SEK 20 M, which is attributable to final reconciliation of merger balances. The amount is primarily attributable to adjustment of vessel values.

 

Independent, external vessel assessments and completed impairment tests indicate considerable surplus value in the Group's fleet of vessels.

 

Consolidated earnings for full-year 2005

 

The Group's net revenue for full-year 2005 declined due partly to the divestment of the Dry Cargo division and partly to the drop in volume resulting from the labor market conflict in Finland and to declining deliveries of Canadian newsprint in the fourth quarter. Consolidated net revenue totaled SEK 2,481 M (2,652).

 

Operating profit before restructuring items improved by SEK 20 M and amounted to SEK 123 M (103).

 

Operating profit pro forma, excluding the divested Dry Cargo division, improved by SEK 53 M to SEK 100 M (47).

 

The Group's pretax profit amounted to SEK 337 M (97). Profit was positively affected by restructuring items in a net amount of SEK 160 M and a reversal (in accordance with IFRS) of negative goodwill in an amount of SEK 54 M in conjunction with the merger of B&N and Gorthon Lines .
Earnings per share after current tax amounted to SEK 10.90 (3.20).

 

Results by division

Transatlantic Services

The Transatlantic Services division, operated by the wholly owned subsidiary Transatlantic Services, comprises three units that cooperate on tonnage and customer contracts with the aim of increasing capacity utilization and capitalizing on identified synergies.

 

The division's profit for the full year developed less well than expected, and significantly less well than the profit potential that had been identified for the operations. The division's profit for the full year period amounted to SEK 0 M (25). The decline, which occurred primarily in the fourth quarter, consists mainly of the following factors:

 

Weather conditions in North America during the year were unusually severe, resulting in major delays that impacted the entire traffic system. Hurricanes Rita and Katrina also had a negative effect on the transport system.

The impact of the extensive labor market conflict in Finland was not limited to the period of the actual conflict, in the second quarter, but also led to ongoing disruptions during the second half of the year as well.

In Canada, cut-backs in news print production reduced volumes eastbound to Europe, which affected the second half of the year, particularly the fourth quarter. The decline in the volume of export goods to the US also affected operations in the second half of the year.

A number of ship breakdowns in the older tonnage created major additional costs in the form of repairs, production deficits and reallocation of the fleet, as well as a need to lease compensatory tonnage.

High costs for bunker oil and rising USD interest rates.

 

The trend in LoLo traffic was strong during the year, and the volume of transported goods increased. The vessel Sandön was delivered during the year, which will permit higher volumes. Despite disruptions in connection with the conflict in the Finnish forest industry, the negative impact of high costs for bunker oil and severe weather conditions in Canada, the unit's earnings improved.

 

The aforementioned production disruptions had a particularly unfavorable effect on RoRo traffic, resulting in a serious decline in earnings compared with the preceding year. Production cut-backs in Canada and reductions in the volume of export goods are believed to be of a temporary nature and volume availability is expected to gradually improve in 2006, which should also cause a gradual increase in profitability and earnings during the current year. Intensified effort is under way to achieve an increased, balanced flow of contracts and cargo.

 

As a result of the numerous breakdowns in the older tonnage, critical repairs were performed, which in itself creates the conditions for better functioning traffic. Contracts were also signed to sell a number of the division's older vessels, and discussions are under way regarding the divestment of others. The divested vessels will be leased back for a limited period until they are replaced with new, more efficient tonnage. This will reduce the risk to the division of costs for future breakdowns.

 

The situation as regards demand for 2006 is strong and to meet it, as previously announced, three of the newer vessels will be extended during the first quarter in of 2006, entailing an increase in capacity of 20% per vessel. To further increase total effectiveness, the number of harbors served will also be reduced.

 

Overall, this means that the extremely weak result, particularly at the end fo 2005, has ben tackled by a number of measures and that a successive earnings improvement is forecast for the division in 2006.

 

European Services

 

The operations conducted by the subsidiary Transatlantic European Services comprise scheduled container traffic to the UK and Germany and contract-based small bulk traffic within Europe. In terms of reporting, there is also a unit for European system traffic for forest products.

 

In scheduled traffic, volume availability and capacity utilization were satisfactory and the cargo balance gradually improved. However, services were affected by heavy costs for leased tonnage, which were immediately offset by corresponding increases in freight charges. Accordingly, full-year earnings for scheduled traffic declined compared with the preceding year.

 

In order to secure access to strategic tonnage for scheduled traffic, and to reduce and better control future tonnage costs, vessels and shares in vessels were acquired during the year. In response to increased demand for container transport to and from the UK, capacity was increased beginning at year-end, and Helsingborg is now a port of call to better serve southern Sweden. The division has also entered into market cooperation with Schenker AB.

 

During the year, the trend for contract-based bulk traffic was strong, having benefited from a strong cargo market. During the autumn, the division increased its ownership of the two new bulk vessels Andromeda and Capricorn. Earnings from bulk traffic were favorable and in line with the preceding year.

 

In terms of its operations, scheduled traffic for forest products developed somewhat less well than planned. During 2006, the three NETSS vessels, which are built by Aker Finnyard in Finland, will be delivered, which will mean an increase in scheduled traffic. In this connection, the Transatlantic Services division's new container line, the TransLumi Line, will start operating between Northern Finland and Germany via Gothenburg. In establishing this traffic, Transatlantic is continuing to pursue its strategy of developing system transport for the forest products industry in the Baltic Sea area. The line, which is expected to be fully established in 2007, is believed to have strong future prospects as regards volume growth and earnings contributions.
The division's profit for the full year amounted to SEK 34 M (39). In view of the market situation and the measures taken to increase the division's cost-effectiveness and strengthen its market position, earnings for the current year are expected to improve compared with 2005.

 

Icebreaking/Offshore

 

Operations are conducted through the Norwegian joint-venture company TransViking, in which Transatlantic owns 50%.

 

As a result of a high price for oil and increased prospecting and recovery in the North Sea, demand for tonnage in the offshore sector rose sharply, in a marked departure from the relatively weak offshore market of recent years. Behind the strong trend, which is expected to continue in the next few years, lies increased solid global demand for energy and oil. There is substantial future potential in the arctic regions, creating new development and business opportunities for the Transatlantic Icebreaking and Offshore division.

 

In 2005, capacity utilization for the division's three combination vessels rose. Cargo rates increased significantly, rising by nearly 90% compared with 2004.
As a result of this, the division's profit improved to SEK 89 M (9), enabling it to exceed the record earnings achieved in 2001.

 

The year 2006 began according to plan. Discussion of alternative expansion strategies is under way. The demand scenario for the next few years is expected to be favorable, implying that the division is expecting to continue to report strong earnings.

 

Dry Cargo

 

The Dry Cargo division was divested during the second quarter and therefore does not affect the consolidated earnings for the second half of the year.
Profit for the full year amounted to SEK 23 M (56).

 

Central Group organization

 

The central Group organization comprises management and the Production support function, as well as central administration and financial management. This comprises vessel management, which is responsible for the Group's fleet, as well as assignments for external vessel-owners. These are responsible for all operating costs, and Transatlantic charges actual operating expenses incurred and fees for the external vessels.

The primary motive for accepting external assignments is to achieve economies of scale for shipboard employees and for the comprehensive purchases undertaken for the Group's fleet of vessels.

 

Groupwide expenses amounted to a loss of SEK 23 M (loss: 26).

 

Restructuring items and reversal of negative goodwill

 

Restructuring items booked for the first quarter mainly comprise profits from the divestment of the Dry Cargo division and net contributions from sale of vessels undertaken. The European Services division's Dutch-based bulk vessel operations were reorganized and partly phased out, and the limited cost for classification as a restructuring item.

 

There was an impact of SEK 54 M on consolidated earnings as a result of the new IFRS rules. Negative goodwill, which occurred in the Group as a result of the merger with Gorthon Lines in March, was dissolved and added to shareholders' equity over the income statement. The calculation carried out in connection with the merger, which is based on a calculation of the fair value of assets and liabilities included in the merger, was adjusted as a result of the final reconciliation of the valuation conditions at the time of the merger.

 

 

 

Corporate tax

 

As in earlier years, the tax payable is marginal. Accordingly, corporate tax consists to a decisive degree of deferred tax. The low amount of tax payable is attributable to the fact that the Group's operations are partly conducted in countries where taxation is based on tonnage tax or similar tax management and that the depreciation regulations in Sweden make it possible to postpone payable tax. A proposal for at new Swedish tonnage tax is being discussed and reviewed and this is expected to implemented in 2006. Tonnage taxation implies harmonization with most other EU countries and a low annual fee would be charged for current tonnage instead of direct, profit-based taxation. The existing, deferred tax liability can then be dissolved and added to shareholders' equity.

 

Investments and divestments, financial position and IRFS

 

Net investments after deductions for loan financing amounted to SEK 147 M (27) and pertained to delivery of a new vessel, the Sandön (intended for Transatlantic operations) during the first quarter and acquisition of the Swing during the third quarter. The Swing was previously leased in on a long-term basis for European operations and consolidated as a financial lease and, consequently, the acquisition has only a minimum effect on the consolidated balance sheet and income statement.

 

During the third quarter, additional ownership was acquired in the Andromeda, Capricorn, Odin and Frej vessels through share purchases in shipping partnerships. These share acquisitions mean that a deciding influence has been gained in the shipping partnerships and that the consolidation principle was changed from the proportional method to the companies being included as subsidiaries in accordance with the acquisition method. The Group's total assets thus increased by approximately SEK 165 M, of which about SEK 55 M was attributable to minority interests.

 

During the year, the Forte, Largo, Marine and the Corner Brook vessels were divested, as was the Transbulk (Dry Cargo division) subsidiary. In terms of liquidity, these divestments generated a total of approximately SEK 225 M for the Group and reduced the Group's total assets by about SEK 140 M.

 

In conjunction with the impending extension work on the Finn class vessels, the Finnwood, Finnpine and Sandön vessels were divested during the fourth quarter and subsequently been leased back for an extended contract period.

 

At the end of December, the Group's total assets amounted to SEK 2,870 M, while shareholders' equity totaled to SEK 1,135 M, corresponding to SEK 36.80 per share. The equity/assets ratio was strengthened considerably during the year, amounting at year-end to 40% (26% at December 31, 2004). This was also reflected in the improvement of the debt/equity ratio from 188% at year-end 2004 to 71% at year-end 2005. Independent valuations of the fleet of vessels and completed impairment tests indicate satisfactory differentials in relation to the book value of the vessels.

 

In view of the Group's strengthened liquidity after the merger and divestments, the loan portfolio was reduced through extra amortization, while the terms for remaining loans were improved through refinancing. After amortization carried out after the close of the first quarter, the Group's interest-bearing loans were reduced by approximately SEK 640 M to SEK 1,104 M.

 

The Group's disposable liquid assets, including unutilized lines of credit, amounted to SEK 313 M at the end of the period (SEK 257 M at December 31, 2004).

 

At the end of December the Group's booked shareholders' equity totaled SEK 1,135 M, corresponding to SEK 36.80 per share, an increase of SEK 371 M or SEK 12,00 per share since the end of 2004. Minority interest in shareholders' equity amounted to SEK 55 M, corresponding to SEK 1.80 per share.

 

This report was prepared in accordance with the IFRS rules, which apply to listed companies as of 2005. The consequences of IFRS adaptation for the Transatlantic Group are presented in a special section of the financial report on the following pages. The effect on the Group is limited and is attributable to IAS 39, which refers to reporting of financial instruments.

 

 

 

Parent Company

 

The Parent Company's operations comprise the Group operations and Groupwide expenses and central financial items.

 

Net revenues in the Parent Company amounted to SEK 181 M (91) for the quarter and SEK 726 M (397) for the full year. Net earnings amounted to a loss of SEK 7 M (65) for the quarter and a loss of SEK 28 M (profit: 58) for the full year. Total assets at the end of the period amounted to SEK 1,284 M (SEK 790 M at December 31, 2004).

 

At the end of the period, the Parent Company's liquid assets amounted to SEK 237 M (SEK 53 M at December 31, 2004). Investments made during the year totaled SEK 9 M (11) and were mainly attributable to the building of a vessel. The Parent Company's accounts were prepared in accordance with the Swedish Financial Accounting Standards Council's recommendation RR 32, Reporting for Legal Entities.

 

Events after the close of the period

 

The older vessels, the M/S Toftön and the M/S Margit Gorthon, were divested and leased back for a period of 2-4 years, with an option to extend the period. The transaction has no significant effect on earning, but generates a liquidity contribution of approximately SEK 70 M. An agreement in principle regarding the sale of the Joh. Gorthon and Acacia vessels was reached and the transaction is expected to be closed during recent months. Additional, somewhat older vessels, may be sold during the current year.

 

The Transatlantic Services division augmented its cooperation with the StoraEnso Group as regards the operation and development of a new transport system for forest products in the Baltic Sea. The system, which also encompasses significant container volumes for overseas destinations, will start operating in 2006, becoming fully established in 2007.

 

As a result of the new cooperation with StoraEnso, Transatlantic Services established a subsidiary, TransLumi Line AB, which is expected to make a favorable contribution to the earnings of the European Services division as early as in the current year.

 

The scheduled traffic of the European Services division to the UK was increased through the addition of more ships and establishment of Helsingborg as a port of call. At the same time, market cooperation was launched with the Schenker Group, aimed primarily at the UK market.

 

Outlook for 2006

 

The market situation and the demand for tonnage within the Transatlantic Services segment are expected to be favorable in 2006. The price trend in relevant segments is expected to be favorable compared with the preceding year. Several measures have been taken to enhance efficiency and improve the company's market position in its various divisions, which are expected to gradually contribute to a favorable earnings trend and that the Group's operating profit for 2006 is expected to be better than the result for 2005. The ongoing extension of the three Finn vessels will generate improved contributions to earnings to Transatlantic Services, but the divison's earnings are negatively affected during the building period.

 

Dividend

 

The Board of Directors proposes that the no change be made to the dividend of SEK 1.00 per share paid to shareholders. A bonus dividend of SEK 1.00 per share is also proposed.

 

The proposed dividend is motivated by reference to the strong trend of the consolidated earnings and the fact that the Board feels shareholders should be allowed to participate in the year's extraordinary revenues, consisting mainly of proceeds from the divestment of the Dry Cargo division. The proposal should also been viewed in light of the Group's financial position, which was considerably strengthened during the year.

 

In addition, it is proposed that a repurchase program for shares to be introduced.

 

Financial reports 2006

 

First quarter 2006: April 26
Second quarter 2006: August 17
Third quarter 2006: October 26

 

Annual General Meeting

 

The Annual General Meeting will be held on April 26 and a special notice will be published prior to the meeting.

 

 

Skärhamn, February 21, 2006

 

Rederi AB Transatlantic (publ)

 

Board of Directors

 

For further information, please contact President, Håkan Larsson, or
Executive Vice President, Hans Carlweitz,
Tel. +46-304-67 47 00

 

(For complete report see attached file)