LEIF HÖEGH & CO. ASA

A N N UA L R E P O R T 1 9 9 7

Company ProfileThe year 1997 Financial summary

Report of the Board of Directors

Consolidated accountsStatement of IncomeBalance SheetCashflow Statement Accounting principlcesNotes to the accounts

Accounts - Leif Höegh & Co. ASAStatement of IncomeBalance SheetCashflow StatementNotes to the accounts Auditor's Report

Analytical information Shareholder relations

Report of the managementConsolidated structureGasDry bulk Höegh Lines Höegh Fleet Services AS EnvironmentHUAL AS Unicool Ltd Bona Shipholding Ltd

Addresses Words and expressions

The fleet

345

6

121213141517

262627282933

3436

38394042444850525458

6062

63

ANNUAL GENERAL MEETING: FINANCIAL CALENDAR:General Meeting 22 April 1998 Report 1. quarter 22 April 1998

Report 2. quarter 23 July 1998Report 3. quarter 22 October 1998Preliminary report 1998 18 February 1999

CONTENTS

LH

C

AN

NU

AL

R

EP

OR

T

19

97

3

LHC and its affiliated companies operate afleet of about 120 technologically advancedvessels, of which 49 are either owned or part-ly owned. The company employs about 1,600people of which 1,220 are employed at sea.

LHC is engaged, directly or through subsidiarycompanies, in the following major activities:

Transportation of gas

Transportation of dry bulk cargoes

Liner trade

Transportation of forest products

Ship management

Transportation of cars and trailers

Reefer trade

LHC also owns 33.6% of the shares in BonaShipholding Ltd, a fully integrated ship-owning company, operating 31 tankers andcombination carriers in oil and dry bulk.

Leif Höegh & Co. ASA (LHC) was foun-ded in 1927. The company is listed on theOslo Stock Exchange and is ranked as oneof the world's leading shipping companieswithin its chosen business areas.

LHC’s business strategy is to create valuesfor customers and shareholders by develo-ping competitive logistic solutions andsystems within selected industrial shippingsegments. Acquisitions and restructuring ofactivities are part of this strategy.

COMPANY PROFILE

LH

C

AN

NU

AL

R

EP

OR

T

19

97

4

Establishing Unicool Ltd

Contract for the construction of two car carriers

Purchase of 50% share in two small car carriers, CARIB SEA and CARIB SUN

Sale of the dry bulk vessel IRON MASTER

Delivery of the open hatch vessel HÖEGH MORUS

Purchase of two 211,000 dwt bulk carriers SHOUGANG ENTERPRISE and

SHOUGANG PROSPERITY, fixed for up to 15 years charterparties

Refinancing of the fleet through a syndicated loan facility of USD 250 million

Extraordinary dividend of NOK 200 million in the form of shares in Bona

LHC 70th anniversary

THE YEAR 1997

LH

C

AN

NU

AL

R

EP

OR

T

19

97

Amounts in 1997 1996 1995 1994 1993

STATEMENT OF INCOMEFreight revenues, net NOK million 3,475 3,471 2,943 2,800 2,433Operating profit before sales gain and depreciation NOK million 727 651 558 323 616Operating profit NOK million 583 352 285 105 307Net financial items NOK million (300) 3 (29) 42 28Profit before extraordinary items NOK million 392 370 292 150 335Net profit NOK million 335 740 303 276 244

BALANCE SHEETCurrent assets NOK million 1,218 1,195 1,251 1,043 929Vessels and other fixed assets NOK million 5,666 4,716 4,317 4,243 3,035Total assets NOK million 6,884 5,911 5,568 5,286 3,964

Current liabilities NOK million 703 947 601 769 559Long term debt NOK million 3,548 2,483 2,575 2,308 1,344Deferred tax NOK million 24 0 366 354 453Equity at book value including minority interests NOK million 2,609 2,481 2,026 1,855 1,608Total liabilities and equity NOK million 6,884 5,911 5,568 5,286 3,964

Equity ratio % 38 41 37 35 41

Net interest bearing debt NOK million 2,047 1,428 1,097 427 182

PROFITABILITY*)

Operating margin1) % 29 18 18 7 22Return on equity2) % 13 18 13 14 16Return on total assets3) % 12 9 9 5 11

LIQUIDITY*)

Cash and marketable securities NOK million 1,049 1,105 1,172 964 898Cashflow4) NOK million 399 645 524 359 518Net interest NOK million (117) (87 ) (67) (6 ) 10Current ratio5) % 173 126 208 136 166Debt service ratio6) % 19 45 50 86 285

KEY FIGURES PER SHARE*)

Earnings7) NOK 11.20 11.80 9.00 9.20 8.10Cashflow NOK 13.30 21.50 17.50 12.00 17.40Price/earnings ratio 13.4 11.4 10.3 9.8 13.1 Price/cashflow ratio 11.3 6.3 5.3 7.5 6.1Dividend NOK 4.00 10.67 3.00 3.00 3.00Dividend ratio8) % 35.8 85.6 29.7 32.6 36.9Market price per 31 December NOK 150.00 135.00 93.00 90.00 106.00

*) Exclusive reversal of deferred tax in 1996 in connection with implementation of the new tax scheme.

1) Operating profit as percentage of income on T/C-basis.2) Profit before extraordinary items less tax as percentage of average shareholders’ equity including minority interests.3) Profit before extraordinary items plus financial expenses in percent of average total capital.4) Profit after financial items plus depreciation, less profit associated companies, less tax payable, less gain on sale of vessel, payable without adjustments for miority interests.5) Current assets as percentage of current liabilities.6) Cashflow as percentage of net interest bearing debt (exclusive newbuilding obligations).7) Result before extraordinary items, less tax, less minority interest, plus/minus tax on extraordinary items..8) Dividend as percentage of net profit.

5

FINANCIAL SUMMARY1997

REPORT OF THE BOARD OF DIRECTORS

LH

C

AN

NU

AL

R

EP

OR

T

19

97

6

LEIF HÖEGH & CO. ASA – QUALITY FOR THE FUTURELeif Höegh & Co. ASA (LHC) has been restructured froman integrated company to a group of independent businessunits.

To be competitive in the future, the company’s manage-ment systems have been thoroughly examined and im-proved at all levels. We have strengthened the organisationconsiderably with emphasis on employee competence and alower average age.

In addition to the recruiting and training of Norwegianofficers, we have strengthened the training of Philippineofficers. A dedicated office is being established in Manila tosecure the identity and continuity of our activity. In thisarea the planning horizon is 10-15 years. Our most impor-tant recruitment area today is the Philippines.

Separately and through our participation in HUAL ASand Unicool Ltd we have 26 offices around the world. Intoday’s competitive environment, synergies between ourbusiness units must be exploited, both on the cost and reve-nue side. As a consequence we have , together with Unicooland HUAL, opened an office in Shanghai. China representsan important market potential for several entities withinLHC, such as gas, dry bulk, Unicool and HUAL.

Safety and continous efforts to avoid accidents havealways been important priorities to professional shippingcompanies. It is today no longer enough to focus on safetyalone. The shipping industry in general must to a largerextent take environmental considerations when offering itsservices. LHC is working systematically to understand howour activities affect the environment and how we can re-duce these effects. This is part of the process enabling us tocontinue to be an environmentally conscious supplier oftransportation services in the future.

Pollution from ships is regulated through the inter-national convention «Marpol 73/78» as well as throughnational regulations. LHC operates according to theseregulations. The company’s focus on the environment ismore specifically described on page 50 in the Report of theManagement.

The process to prepare for the year 2000 is well under-way. This particularly applies to EDP, where all systemsolutions are being examined in order to function in theyear 2000. With additional emphasis on standard solutionsand flexibility, as well as the year 2000 problem, a separateproject is implementing a new accounting system to be operative by 01.01.1999.

The decision to comply with the new tax scheme forshipping companies was taken in February 1997 with effect from the accounting year 1996. The transfer of shipsand companies from LHC to the new company, Leif Höegh& Co Shipping AS (LHS) was completed by the end ofApril 1997. The new scheme has a positive effect on thecompany’s ability to invest, future development potentialand international competitiveness.

RESULTSOperating profit before gain on sale of vessels and depre-ciation was NOK 727 million (NOK 651 million in 1996)and operating profit after gain on sale of vessels and depre-ciation was NOK 583 million (NOK 352 million in 1996).The year was characterized by the strong performance ofHUAL, a positive development for Unicool and a relativelypoor result for the liner/open hatch vessels. The strong USDhad a positive effect on the operating result as did thereduction of yearly depreciation for most vessels from 5%to 4% and down to scrap value. The effect of the change indepreciation was NOK 157 million for 1997. Gain/lossfrom sale of vessels is as of 1997 treated as part of the ope-rating profit.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

7

Income from financial assets was satisfactory. Totalrisk was reduced through extensive use of derivatives whichlimited the return in excess of the risk free interest. A pro-vision for an estimated loss of NOK 13 million was madein the second quarter in connection with the bankruptcy ofNoka Securities AS. The strengthening of the USD fromNOK 6.45 at the beginning of the year to NOK 7.35 at theend of the year contributed to a foreign exchange loss ofNOK 213 million, of which NOK 160 million was unrea-lised. The foreign exchange loss is primarily an accountingeffect of mortgage debt on vessels in USD. A strong USD ispositive for LHC Consolidated which has USD denomi-nated revenues and assets.

Net financial items were minus NOK 300 million(NOK 3 million in 1996).

Net profit for the year was NOK 335 million (NOK 740 million in 1996). Net profit for 1996 includedreversal of deferred tax of NOK 366 million as a result ofthe change to the new taxation scheme for Norwegian ship-ping companies. Without this reversal the net profit for1996 would have been NOK 374 million.

As regards the remuneration of the Board of Directors,The President and the Auditor, reference is made to Note 2in the accounts for the parent company. The company'smain shareholders are listed under "ShareholderRelations".

LIQUIDITY AND FINANCINGLiquidity in the form of bank deposits and marketablesecurities fell from NOK 1,105 million to NOK 1,049 million, of which the share of the liquidity in Unicool repre-sented NOK 207 million. The decrease was caused by equity payments both in connection with the purchase ofsecondhand vessels and newbuilding contracts. Net invest-ments amounted to NOK 1,015 million (NOK 997 millionin 1996).

In addition to an ordinary dividend of NOK 4.00 pershare it was paid an extraordinary dividend by distributing2.5 million shares in Bona Shipholding Ltd, representingNOK 6.67 per share in LHC, in total NOK 200 million.

In connection with the establishment of and transfer ofvessels to LHS as a result of the new tax scheme, severalsmaller loans were refinanced through a syndicated loan inthe amount of USD 250 million. Most of the vessels ownedby Unicool were also refinanced through a USD 143 million facility. USD 81 million was raised in connectionwith the purchase of two Capesize bulkers and an agree-ment was reached for 80% financing of the car carriernewbuildings.

The Board fromthe left:Einar KlosterWestye HøeghKarl Otto GiljeTruls HoltheTruls Bergersen

Per A. Flaate wasnot present whenthe picture wastaken

LH

C

AN

NU

AL

R

EP

OR

T

19

97

8

HÖEGH LINESHöegh Lines includes the liner operation between theNorth American east coast and South East Asia and theopen hatch/contract activity.

The liner operation, which now includes six vessels ofsimilar size, was faced with lower cargo volumes through-out the year. Volumes outbound from North America weresatisfactory during the first half year. In the second half, thecrisis in South East Asia led to lower volumes, particularlyto Indonesia. Inbound to North America the vessels hadspare capacity throughout the year. The competition fromthe specialized container vessels was strong which had anegative effect both on the number of containers carriedand the prices obtained. All the liner vessels drydocked in1997, with somewhat longer offhire than budgeted.

The open hatch/contract segment experienced a simi-lar trend with lower volumes towards the end of the year.Pacific Commerce Line Inc. (PCL), which is owned 100%by LHC, operates a liner service between the west coast ofUSA/Canada and Japan. The number of vessels employedin the service was reduced from three to two due to loweconomic growth and reduced demand in Japan for timberand forest products. Two vessels continue to operate undera cooperation agreement with Companhia de NavigacaoNorsul between Argentina/Brazil and North Europe. A fiveyear contract for the transportation of forest products fromChile to North Europe came to an end and was replaced bya new contract for similar cargoes from Chile to the FarEast. General shortage of cargo led to some vessels beingchartered out short term or operated in the spot market.

The two oldest vessels, HÖEGH CAIRN andHÖEGH CLIPPER were during the year phased out of theliner operation. Both vessels are fixed on 12 month time-charters to Rickmers Linie. The second of two open hatchnewbuildings, HÖEGH MORUS, was delivered inSeptember. The vessel was initially employed in PCL, butwill in 1998 service the contract between Chile and the FarEast. The first newbuilding, SAGA CHALLENGER, whichwas delivered in 1996, completed the first of a five yeartimecharter to Nippon Yusen Kaisha.

GASThe gas sector includes the LNG/LPG vessels NORMANLADY and HÖEGH GANDRIA. Both vessels are em-ployed under long term charterparties and obtained a resultin line with that of 1996. NORMAN LADY is temporarilychartered out to A.P. Møller and was in 1997 employed inthe transportation of LNG from Abu Dhabi to Spain. As of1999 the vessel will commence a 13 + 7 year charterpartyto Enagas S.A. for the transportation of LNG fromTrinidad to Spain. HÖEGH GANDRIA continued to tradeunder its 20 year charterparty to Pertamina, which expiresin 2006.

DRY BULKThe result was strongly affected by the 15 year classifi-cation of the Capesize vessel IRON MASTER, which wasmore time consuming and expensive than expected. Thevessel was subsequently sold with a book gain of NOK 17million. MERCHANT PRESTIGE, which is chartered infor two years with an optional third year, was employed onshort term charterparties at acceptable rates. The sistervessel, MERCHANT PARAMOUNT, was chartered in forup to five months and will be partly employed in the trans-portation of coal from Australia to Europe under a longterm contract with BHP Coal Pty. Ltd.

The dry bulk fleet increased substantially through theacquisition of two vessels from companies in Hong Kongcontrolled by the state-owned Chinese Shougang Group inBeijing. The vessels were delivered from Daewoo HeavyIndustries Ltd in October 1996 and May 1997, respec-tively. Total cost of the vessels was USD 102 million andthey are chartered back to the Shougang Group for up to15 years. The agreement provides for early termination bythe Shougang Group on terms that will secure LHC a cert-ain return on capital invested. The agreement increased thecontract coverage within LHC.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

HÖEGH FLEET SERVICES ASHöegh Fleet Services AS (HFS) is now established as a sepa-rate ship management entity for vessels owned by LHC andassociated companies. The company is responsible for thetechnical and crewing management of a fleet of 35 vessels,which is five more than the year before. The operation ofthe fleet was satisfactory. Three vessels underwent repairsfor damage caused by minor collisions. 16 vessels weredrydocked, most of them in the Far East.

The crews are increasingly international. There areadditional needs for organisation and systems. Vessel in-surance was renewed at reduced premiums and on bettergeneral terms and conditions. This was a result of good claims statistics and continued strong competition in theinsurance market.

HUAL ASHUAL (previously Höegh Ugland Auto Liners A/S), whichis owned 50/50 by Ugland International Holdings plc.(UIH) and LHC, is the marketing vehicle for the transpor-tation of cars and other rolling stock. The demand fortransportation of this kind of cargo was very high in 1997.A contributing factor was the export of cars from Japanwhich increased after a period of strong decline. Access tocargo was also high in most of HUAL's other lines. Therewas a shortage of available car carriers throughout the year,which i.a. led to increased use of reefers from Unicool toincrease the transportation capacity. HUAL carried in 1997the equivalent of 915,000 standard car units, which is anew record. The result achieved was the best since the co-operation with the Ugland group started in 1971, both interms of earnings per vessel and in total.

To meet customer demand, secondhand vessels werepurchased and new vessels ordered. Two small vessels,CARIB SEA and CARIB SUN, were purchased in the firstquarter on a 50/50 basis with UIH. The vessels are particu-larly suitable on short hauls and were in 1997 used in theCaribbean. In May a newbuilding contract was entered

into with Daewoo Heavy Industries Ltd in South Korea forthe construction of a 6,000 unit car/truck carrier for de-livery in January 1999. Delivered price is estimated to USD 59 million. Predelivery instalments to the yard areguaranteed by the Export Import Bank of Korea. A con-tract for a similar vessel was entered into in August withStocznia Gdynia SA in Poland for delivery in June 1999.Delivered price is estimated to USD 57 million. The con-tract includes two optional vessels. UIH has a similarnewbuilding program which will maintain the balancebetween UIH and LHC in HUAL.

UNICOOL LTDThe LHC reefer activity was restructured with effect from01.01.97 through a joint venture with SafmarineInternational. Both companies merged their respective reefer interests into a new entity, Unicool Ltd, and previousinvestor, Tufton Oceanic Ltd, was bought out. In this process Unicool acquired 18 vessels and the operating com-pany, Cool Carriers AB, representing more than USD 400million of assets. The ownership structure of the new company is Safamarine International (50%), LHC (49.8%)and Girestad, a company controlled by the President ofUnicool (0.2%).

Cool Carriers controls 75 vessels and is the world's largest operator of reefers above 250,000 cbft. 51 vesselsare operated through the Leoniana-pool and 20 vesselsthrough ECo Shipping Ltd, which is a joint venture withEastwind Transport Ltd.

Due to its size and customer base, Cool Carriers canoffer competitive logistic solutions. One example is the longterm agreement entered into with the Noboa group inSeptember for the transportation of bananas from Ecuadorto the US west coast and Japan. The transportation ofbananas is combined with Cool Carrier's present agree-ment with Sunkist for the transportation of citrus fruitsfrom the USA to Japan. Backhaul cargoes from Japan

9

LH

C

AN

NU

AL

R

EP

OR

T

19

97

includes secondhand cars to South America and NewZealand and from New Zealand apples and kiwi fruit areloaded for Europe. This is a good example of a systemwhich through a combination of cargoes optimizes the utili-zation of the vessels, creating a more cost efficient solutionfor the customers.

The operating profit increased substantially as a resultof a larger fleet and a somewhat higher average income incents per cbft. This was achieved in a market which wasweaker than expected, with general rate levels below thoseof 1996. Bad weather led to reduced crops and lower trans-portation volumes in the high season. The seasonal weakthird quarter for reefers was also worse than expected withactivity increasing again in the fourth quarter. High contract coverage and better contribution from cars ontraditional ballast legs, in good cooperation with HUAL,contributed to the improved result.

BONA SHIPHOLDING LTD Bona Shipholding Ltd's fleet included by year end 31 vessels, of which 18 Aframax tankers and 13 PanmaxOBOs, which was unchanged from the year before. Astrong improvement in the tanker market contributed toBona obtaining the best result in the company's history.The earnings of the Aframax tankers increased by 29%,while the earnings of the Panmax OBO vessels only increa-sed marginally due to a relatively weak dry bulk market. Afocused commercial strategy and a comprehensive projectwith a view to improve operational efficiency and reducecosts contributed to the good results.

Net profit for the year was NOK 292 million (NOK 32 million in 1996), of which LHC's share wasNOK 109 million (NOK 13 million in 1996). The cashflowwas USD 74.8 million (USD 49.9 in 1996) and cashflowper share was USD 2.64 (USD 1.76 in 1996). The shareprice finished the year at NOK 75 (USD 10.20) which isbasically unchanged from last year. Net asset value pershare was NOK 103 (USD 14.06)

EXPECTATIONS FOR 1998 The operating profit is expected to be in line with that of1997, assuming unchanged NOK/USD exchange rate andcontinued low bunker prices.

The charterparties of the vessels in the gas sector should produce a similar result to that of 1997.

Dry bulk has only limited market exposure due to longterm charterparties for the two owned vessels and somecontract coverage for the two chartered in vessels.

1997 was a record year for HUAL and a similar resultis expected for 1998.

Unicool expects a result at, or slightly below, the levelof 1997. There is, however, a high degree of uncertainty asto the possible effects of the weather phenomenon El Niñoand surplus container capacity as a result of the situation inSouth East Asia.

Höegh Lines operates in difficult markets which arealso affected by the situation in South East Asia and expects somewhat lower results.

10

REPORT OF THE BOARD OF DIRECTORS

LH

C

AN

NU

AL

R

EP

OR

T

19

97

11

LEIF HÖEGH & CO. ASA (PARENT COMPANY)Profit before extraordinary items was minus NOK 49 mil-lion. Net profit of the year was NOK 1,432 million.

The Board will propose to the Annual GeneralMeeting that a dividend of NOK 4.00 per share is paid for1997.

Proposed allocation of net profit (in NOK million):Dividend 120Legal reserves 0Consolidated contribution (7)Retained earnings 1,319Total allocated 1,432

The Board of Leif Höegh & Co. ASAOslo, 25 March 1998

Einar Kloster Karl Otto Gilje Truls Holthe

Truls Bergersen Westye Høegh Per A. Flaate Chairman

Thor Jørgen GuttormsenPresident

LH

C

AN

NU

AL

R

EP

OR

T

19

97

12

(NOK million) Note 1997 1996 1995

OPERATING INCOME AND EXPENSESFreight revenues 3,475 3,471 2,943Voyage expenses (1,442) (1,512) (1,316)Income on T/C-basis 2,033 1,959 1,627

Charterhire expenses (722) (781) (620)Crew expenses (190) (176) (154)Other operating expenses 2 (348) (312) (261)General administrative expenses 3 (46) (39) (34)Operating profit before sales gain and depreciation 727 651 558

Gain on sale of vessels 6 37 13 5Ordinary depreciation 12 (181) (312) (278)

OPERATING PROFIT 18 583 352 285

Profit associated companies 11 109 15 36

FINANCIAL INCOME AND EXPENSESInterest income 49 58 54Realised foreign exchange gain/(loss) 4 (53) 29 (75)Unrealised foreign exchange gain/(loss) 4 (160) 5 31Interest expenses (166) (145) (121)Other financial items 5 30 56 82Net financial items (300) 3 (29)

PROFIT BEFORE EXTRAORDINARY ITEMS 392 370 292

Extraordinary items 0 19 47

PROFIT BEFORE TAX 392 389 339

Tax payable (28) (9 ) (7 )Ordinary change in deferred tax (29) 0 (27)Reversal of deferred tax 0 366 0Tax 7 (57) 357 (34)

CONSOLIDATED PROFIT 335 746 305

MINORITY INTERESTS 0 (6) (2 )

NET PROFIT 335 740 303

Profit per share 21 11.20 12.50*) 10.10

*) Exclusive reversal of deferred tax as a consequence of the new tax scheme for the shipping industry.

STATEMENT OF INCOMEConsolidated Companies

NOTESConsolidated Companies

LH

C

AN

NU

AL

R

EP

OR

T

19

97

13

(NOK million) Note 1997 1996 1995

ASSETSBank deposits 8 372 261 383Marketable securities 9/10 677 844 789Bunkers and other current assets 169 90 79Total current assets 1,218 1,195 1,251

Shares 11 804 898 906Long term receivables 7 27 29Vessels 12 3,830 3,256 2,591Newbuildings 13 823 292 562Goodwill 12 55 116 133Other fixed assets 12 147 127 96Total fixed assets 5,666 4,716 4,317

TOTAL ASSETS 6,884 5,911 5,568

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent portion of long term debt 15 290 314 227Current portion of newbuilding obligations 13 68 55 50Provision for dividends 120 320 90Other current liabilities 14 225 258 234Total current liabilities 703 947 601

Mortgage debt/lease obligations 15 2,806 2,192 1,988Newbuilding obligations 13 650 220 482Pension obligations 16 33 40 51Other long term debt 59 31 54Deferred tax 7 24 0 366Total long term debt 3,572 2,483 2,941

Minority interests 17 0 87 52

Share capital 60 60 60Legal reserve 720 720 377Non-distributable reserve 0 0 40Retained earnings/Consolidated reserve 1,829 1,614 1,497Total shareholders’ equity 17 2,609 2,394 1,974

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 6,884 5,911 5,568

Guarantees and long term T/C commitments 20 688 705 662Assets pledged 15 3,647 3,082 2,372

BALANCE SHEET 31 . 12 .Consolidated Companies

CASHFLOW STATEMENTConsolidated Companies

LH

C

AN

NU

AL

R

EP

OR

T

19

97

14

(NOK million) 1997 1996

CASHFLOW FROM OPERATIONAL ACTIVITIESProfit before tax 392 389Tax paid (25) (7 )Loss/(gain) on sale of fixed assets (37) (13)Ordinary depreciation 181 312Profit associated companies (109) (14)Movement in stocks, accounts receivable and accounts payable (139) 26Movement in other short term items 3 (7)Effect of change in currency exchange rates 160 (5)Sale/purchase of marketable securities 168 (55)Net cashflow from operational activities 594 626

CASHFLOW FROM INVESTMENT ACTIVITIESSale of fixed assets 84 95Purchase of fixed assets (738) (739)Payments made on newbuilding contracts (398) (264)Sale of shares in other entities 222 0Purchase of shares in other entities 0 0Other investments 237 23Net cashflow from investment activities (593) (885)

CASHFLOW FROM FINANCIAL ACTIVITIESLong term loans raised 2,818 588Payments on long term loans (2,388) (331)Dividends paid (320) (120)Net cashflow from financial activities 110 137

NET MOVEMENT IN CASH AND CASH EQUIVALENTS 111 (122)

Cash and cash equivalents per 01.01. 261 383

Cash and cash equivalents per 31.12 372 261

LH

C

AN

NU

AL

R

EP

OR

T

19

97

The accounts have been prepared in accordance with theJoint Stock Companies Act and generally acceptedaccounting principles in Norway. The most importantaccounting principles followed by the company aredescribed below.

A) PRINCIPLES OF CONSOLIDATIONConsolidated companiesLHC Consolidated includes the parent company LHCand companies in which LHC directly or indirectly holdsa majority of the voting capital (see C, however).

As specified in Note 11, LHC has also further sub-sidiares than those included in the consolidation. Thesecompanies are agent offices and/or subsidiaries with limi-ted activity and are immaterial to the consolidatedaccounts.

Elimination of intercompany balances, transactions, profits and sharesIn the consolidated accounts all intercompany balances,transactions and profits arising between the consolidatedcompanies have been eliminated.

The cost of shares in subsidiaries has been eliminatedagainst equity in the subsidiaries at the time of acquisitionor establishment. The shares in subsidiaries are eliminatedaccording to the acquisition accounting method as thecompensation which, at the purchase time, exceeds equity at book value is allocated to the assets in questionand depreciated ordinarily over the expected remaininglifetime in the consolidated accounts. Additional value,not allocated to assets, is classified as goodwill and depre-ciated over 10-20 years according to a specific evaluation.

Deferred tax advantage due to deficits carried for-ward and other negative temporary differences at the timeof acquisition is included in goodwill. When these advan-tages materialize as payable tax, goodwill is reduced bythe realized amount and the tax cost of the year is chargedaccordingly.

Conversion of accounts of foreign subsidiariesThe accounts of foreign subsidiaries are converted intoNOK at average rates of exchange during the year as regards the statement of income and at year-end rates as regards the balance sheet. Exceptions are made for vessels,which are converted at historical rates and long term debt,which are converted at historical or year-end rates, which-ever is the higher. The conversion difference is in reality currency exchange gain or loss and has been included inthe financial items.

B) ACTIVITIESThe distribution into different activities is based on thecompany’s internal management and reporting. Trans-actions between the consolidated companies’ variousactivities are done at market price and are eliminated inthe consolidated statements.

C) INVESTMENTS IN OTHER COMPANIESThe company’s investments in joint ventures are accoun-ted for in the consolidated accounts using pro rata con-solidation. The pro rata method implies that revenues,expenses, assets and liabilities are included in the accountswith the share owned by LHC.

A number of vessels owned by LHC Consolidatedare operated through pool arrangements. The participantsin these pools are the companies contributing vesselcapacity to the pools and include, in addition to LHC andsubsidiaries, outside partners. The pools are treatedaccountingwise as joint ventures. Revenues, assets andliabilites of the pools are included in the consolidatedaccounts to the extent of the consolidated companies’ par-ticipating interests. This pro rata consolidation principle isapplied also when the consolidated companies act asoperators and LHC Consolidated has a majority owner-ship interest in the pool.

Other companies, in which LHC owns between 20%and 50%, are included in the consolidated accounts according to the equity method, provided the investmentsare of a long term nature.

Other long term investments in shares and in limitedpartnerships are included according to the cost method.

D) DEPRECIABLE FIXED ASSETSDepreciable fixed assets are stated in the balance sheet atcost, less ordinary depreciation.

The straight-line method is used for ordinary depre-ciation of vessels based on 25 years economic lifetimefrom delivery of the vessel as new (as from 1997, pre-viously 20 years). The dry bulk vessels are depreciatedover 20 years and the gas vessels over 30 years. The scrapvalue at the end of the depreciation period has beenincluded (as from 1997). Depreciation of office equip-ment is charged to the operation as administrativeexpenses.

E) NEWBUILDING CONTRACTSNewbuilding contracts are capitalized at the estimatedcost, including interest (as from 1997) during the buildingperiod. Corresponding liabilities, less instalments paid, areentered as short term and long term debt.

F) FOREIGN EXCHANGEAll current assets and current liabilities in foreign curren-cies, except the current portion of long term debt, arerecorded at year-end rates of exchange. Exchange gains orlosses are included as financial items in the statement ofincome.

Forward foreign exchange contracts, which are nothedging contracts, have been valued at year-end, based onthe lowest of forward and market rates on a portfoliobasis. Net unrealized loss is expensed.

Long term debt (including current portion) and longterm receivables (including current portion) are valuedtogether per currency. The net amount is recorded at historical or year-end rates, whichever is the higher, if theamount is a debt and vice versa if the amount is a receiv-able if the item is not secured through long term charter-parties. When currencies in which the group has debt(mainly USD) strengthen against NOK, unrealized lossesare recorded. If currencies weaken, or loans are repaid,resulting in realized exchange gains/losses, previouslycharged unrealized losses are reversed as income.

Following year-end rate of exchange is used:NOK/USD 7.35

15

ACCOUNTING PRINCIPLES

LH

C

AN

NU

AL

R

EP

OR

T

19

97

16

G) LEASINGAsset values and obligations in respect of vessels financedthrough lease agreements, where the company has theoption to buy the vessel for the remaining principalamount outstanding of the lease debt, are capitalized andclassified as vessels and long term debt.

The interest element of a lease payment is included ininterest expenses and the capital element of a lease pay-ment is treated as repayment of debt. The lease liability isthe remaining principal amount outstanding.

H) FINANCIAL INSTRUMENTSCurrent assets in the form of shares and bonds are regarded as two separate portfolios and have been valuedat the lower of cost or market value on a portfolio basis.Option premiums are netted against shares.

I) REVENUE RECOGNITIONIncome and expenses related to uncompleted voyages areaccounted for on a percentage of completion basis.

J) T/C CONTRACTS AND FREIGHT CONTRACTSTimecharter contracts and other freight contracts are valued at year-end and any estimated loss is being providedfor. The evaluation is done on a portfolio basis for contractsin connection with combined operations.

K) CLASSIFICATION EXPENSESIn connection with drydocking, the expenses and upgrad-ing imposed by the class are capitalized and depreciatedover the period until the next classification/drydocking (30months on average). The same is relevant for the expensesin relation to class certification. When purchasing second-hand vessels and taking delivery of newbuildings, a part ofthe cost price will be deducted and capitalized as classifi-cation costs. When selling vessels the reversal of capital-ized classification costs will be treated as a part of the salesgain/loss. Other maintenance costs are charged to theoperation as they occur.

L) BUNKERS AND OTHER INVENTORIESInventories are valued at cost or market value, whicheveris the lower.

M) EXTRAORDINARY ITEMSAccording to the criteria for classifying income and expen-ses under this category the items must be both unusual,irregular and substantial in order to be classified as extra-ordinary. The effect of changes in accounting principles is,according to the above, considered as extraordinary items.

N) PENSION COSTS AND PENSION LIABILITIESPension costs and pension liabilities are included in thestatement of income and the balance sheet according tothe preliminary Norwegian accounting standard. Net pen-sion costs for the year includes pensions earned during theperiod, including future wage increases and estimated interest on the liability, reduced with the estimated yield onthe pension assets together with possible effects of changesin plans and estimates.

Net pension cost is classified as wages in the statement of income. In the balance sheet net pensionobligations are classified as long term debt.

O) TAXThe tax cost in the statement of income includes both thepayable tax during the period and changes in deferred tax.Deferred tax is included in the long term debt in the balance sheet. Deferred tax is calculated at 28% ontemporary differences for activities outside the tax systemfor shipowning companies.

As from 1996 a new tax system for shipowning com-panies was introduced. The system implies that ship-owning companies on certain conditions will not be taxedon their ordinary income, but only when this income isdistributed as dividend or the companies exit the system.On the other hand, the company is charged a tonnage tax.Untaxed income in relation to net positive temporary differences when joining the scheme will likewise be taxedonly when distributed.

The company has transferred the main parts of itsshipping activities into the new tax system and the posi-tive temporary differences in connection with the trans-ferred activities are accounted for in the “Account forUndistributed Taxed Income”.

The assessment of the present value of deferred tax inconnection with the companies taxed under the new taxsystem is based on the company’s dividend policy, liqui-dity reserve and the taxed equity in the companies beingoutside the new tax system together with the company’sintention to maintain its shipping activities.

P) CASHFLOW STATEMENTThe cashflow statement is prepared according to the indirect method. Shares and financial instruments withmaturity more than 3 months from purchase date are notincluded in cash and cash equivalents.

Q) CONTINGENCIESContingent liabilities are provided for if likely andmeasureable. Contingent gains are not accounted for.

R) EXCHANGE OF SIMILAR ASSETSExchange of similar assets by restructuring of activities inanother form is not regarded as sale if the continued activity has the same risk profile as before the reorgani-sation.

NOTE

4

NOTE

5

LH

C

AN

NU

AL

R

EP

OR

T

19

97

NOTE 1 INVESTMENTS IN AND SALE OF ACTIVITIESLHC Consolidated has per 01.01.97 reduced its investments in the reefer activity through sale of vessels and companies to Unicool Ltd, a compay owned 49.8%.Unicool Ltd is accountingwise treated according to pro rata method.

OTHER OPERATING EXPENSES (NOK MILLION)1997 1996 1995

Services 31 29 18Docking costs 37 37 40Spare parts/consumables 186 145 114Damage 17 16 11Insurance 33 33 36Administration expenses ship management/Other 46 53 44Changes in pension obligations (4) (4) (2)Tonnage tax 2 3 0Total 348 312 261

NOTE 2 GENERAL ADMINISTRATIVE EXPENSESThe administrative expenses of LHC Consolidated related to marketing and operation of the vessels are included in “Voyage expenses” and “Other operatingexpenses”, respectively.The item “General administraive expenses” therefore consists of expenses related to the company’s top management and the president’soffice in addition to the finance and accounting department.

NOTE 3 FOREIGN EXCHANGE GAIN/(LOSS) (NOK MILLION)1997 1996 1995

Realized Unrealized Realized Unrealized Realized Unrealized

Current asset/liabilities 33 0 17 0 (40) 0Forward contracts 14 0 4 5 (43) 27Mortgage debt/lease obligations (100) (160) 8 0 8 4

Total (53) (160) 29 5 (75) 31

A substantial part of LHC Consolidated’s liquidity is invested in Norwegian bonds and shares. The currency exposure on part of this liquidity has been convertedto USD through purchase of USD against NOK (see Note 10).

NOTE 4 OTHER FINANCIAL ITEMS (NOK MILLION)1997 1996 1995

Dividends 24 26 9Gain/(loss) shares/bonds 16 26 57Value regulation shares/bonds (20) 1 17Other items 10 3 (1)Total 30 56 82

NOTE 6

NOTESConsolidated Companies

NOTE

1

NOTE

2

NOTE

3

NOTE

4

NOTE

5

17

LH

C

AN

NU

AL

R

EP

OR

T

19

97

NOTESConsolidated Companies

18

NOTE 7 GAIN/(LOSS) ON SALE OF VESSELS (NOK MILLION)

IRON MASTER

Sales price 84Book value (56)Reversal of capitalized classification expenses (11)Gain on sale of vessels 17

In connection with the establishment of Unicool there was a sales gain of NOK 79 million, of which NOK 20 million was booked in 1997 due to reduced risk pro-file. The balance will be booked as income over the vessels’ remaining life time. Total sales gains for 1997 were therefore NOK 37 million.

TAX (NOK MILLION)Tax per year: 1997 1996

Tax payable (mainly abroad) 28 9Ordinary change in deferred tax (abroad) 29 0Reversal of deferred tax in connection with the implementation of the new tax system 0 (366)Tax 57 (357)

In addition, tonnage tax in the amount of NOK 2 million was charged to other operating expenses. LHC Consolidated had no taxable income in subsidiaries wit-hin the new tax system for shipping companies in 1997.

Temporary differences (Norway) 31.12.97 31.12.96

Outside the tax scheme for shipping companies:Fixed assets 146 39Pension obligations not covered (34) (41)Other 14 2Deficit carried forward (41) 0Total temporary differences 85 0

Deferred tax (net) 24 0Tax rate used 28% 28%

Inside the tax scheme for shipping companies:Negative account for taxed income 3,336 3,336Accumulated untaxed income 368 33Deferred tax 0 0Deferred tax total 24 0

The figures for 1996 are changed in order to reflect the transfer of Unicool Ltd from a subsidiary to a joint venture.

NOTE

6

NOTE

7

LH

C

AN

NU

AL

R

EP

OR

T

19

97

NOTESConsolidated Companies

NOTE 8 BANK DEPOSITS (NOK MILLION)Specification per currency: 1997 1996 1995

USD 279 161 296NOK 20 40 51Other 73 60 36Total 372 261 383

NOK 8 million of total bank deposits was blocked (withholding tax account). NOK 27 million is drawn under a credit line of NOK 47 million.

NOTE 9 MARKETABLE SECURITIES (NOK MILLION)1997 1996 1995

Certificates 21 197 155Bonds, Norwegian 106 376 327Bonds, foreign 96 111 0Shares without written options 103 35 -Shares with written options 160 84 -Shares with guaranteed sales price 241 58 -Option premiums received (50) (17) -Total - shares 454 160 307Total 677 844 789

Shares with written call options and shares with guaranteed salesprice are pledged as security for future liabilities. The shares are pledged onaverage for about 45 days. As per 31.12.97 this amounted to NOK 396 million. Shares with standardised options amounted to NOK 5 million.

SPECIFICATIONS:Certificates: Maturity Book value Market value

Kværner 21.04.98 21 21Total 21 21

Bonds, Norwegian: Duration, years Book value Market value

Norwegian Government 3.4 14 14Miscellaneous municipalities 1.6 30 30Financial institutions 0.6 18 18Private entities 5.0 43 43Accrued interest - 2 2Total 3.1 106 106

Duration, Book valueBonds, foreign: years currency (1000) Book value Market value

USD 1.5 10,520 73 88DEM 5.2 5,154 23 22Total 96 110

NOTE

8

NOTE

9

19

LH

C

AN

NU

AL

R

EP

OR

T

19

97

20

NOTE 9 MARKETABLE SECURITIES (CONTINUED) (NOK MILLION)

Total no of shares LHC Book MarketShares without written options: in the company share value value

Nydalen 18,478,300 2.2% 15 23Castalia (fund in USD) - - 7 8Others - - 84 74Total 105 105

Shares with written call options:LHC owns shares with a book value of NOK 160 million with written call options. Received option premiums of NOK 25 million are accounted for in the balancesheet. As per 31.1297 LHC had 90 option contracts on 48 listed companies. Expiry is generally 3-4 months after entering into the contracts, with strike 5-10%below the purchase price of the underlying shares.. This implies that the risk in relation to these shares is about 30% of the risk related to bying shares withoutselling call options.

NOTE 10 FINANCIAL INSTRUMENTS OUTSIDE THE BALANCE SHEET

Currency instruments:Forward contracts per 31.12.97:

Gain/(loss) Currency Amount Average rate Maturity (NOK 1,000)

With delivery:Sale DEM/purchase NOK DEM 12,451,528 4.0795 1998 (294)Sale SEK/purchase NOK SEK 8,000,000 93.2000 1998 26

Without delivery:Sale USD/purchase KRW USD 250,000 1,765.0000 1998 76

Above unrealised loss has been expensed, while unrealised gains have not been included in the books.

Interest rate instruments:In USD:Trading in Forward Rate Agreements and Treasury bond futures is used to secure fixed interest for part of the USD loans with floating interest (see “AnalyticalInformation”). Unrealised gains at year end, USD 341,000, have not been included in the accounts.

Share instruments:Sale of 30 S&P futures with maturity in March 1998. Unrealised loss of USD 68,250 has been expensed.Sale of 50 OBX futures with maturity January 1998. Unrealised loss of NOK 111,800 has been expensed.

NOTE

9

NOTE

10

NOTESConsolidated Companies

NOTE 11 SHARES (FIXED ASSETS)100% basis LHC pr 31.12.97

No. of No of Book valueCompany Share capital shares shares (NOK 1,000)

Shares in associated companies: 800,745(see specification below)

Shares in other companies:Harpul Höegh Lines Pte. Ltd SGD 100,000 100,000 10,000 2Pac. Oriental Terminal Inc USD 2,500 250 84 6Sea Trench Technology Holding AS NOK 782,500 7,825,000 433,200 3,000Other companies 141Total 803,894

Specification of associated companies: (NOK 1,000)Holding Book value Increase Retirement Profit Book value

Company % 01.01 1997 1997 1997 verdi 31.12

Bona Shipholding Ltd 33.6 885,592 0 198,826 109,679 796,445Euro Marine Carrier B.V. 24.5 1,697 0 14 (1,683) 0Frigorifico Frutero SA 23.5 4,984 0 2,419 81 2,646HFS Philippines Inc. 24.8 0 62 - - 62Partenrederei M.V. Spring Bee 5.0 1,241 - - - 1,241Other companies - 351 - 1,406 1,406 351Total 893,865 62 202,665 109,483 800,745

LHC Consolidated’s share in Bona Shipholding Ltd was reduced during 1997 from 42.3% to 33.6% due to the shares that were distributed as extraordinary divi-dend.

NOTE 12 FIXED ASSETS (NOK MILLION)Accumulated Book Depre-

Cost price Increase Retirement depreciation value ciation01.01.97 1997 1997 31.12.97 31.12.97 1997

Vessels 5,318 1,063 (361 ) (2,189) 3,830 (173 )Capitalized classification cost 39 25 - - 64 -Containers 21 0 0 (4) 17 (2 )Goodwill 196 0 (59 ) (82) 55 (3 )Shares in limited partnerships 36 0 (15 ) - 21 -Other fixed assets 129 11 (5 ) (90) 46 (10 )Total 5,739 1,099 (440) (2,365) 4,033 (188)

Other fixed assets consist mainly of cars and inventories. Depreciation on these assets (NOK 7 million) has been charged the operating profit as administrativeexpenses. The effect of the change in depreciation period, and taking the scrap value into consideration, amounted to NOK 157 million in 1997.

Investments in and sale of fixed assets:1997 1996 1995 1994 1993

Investments (cost price) 1,099 1,092 1,251 422 1,123Sale (sales price) (84 ) (95 ) (36) 0 (1,239 )Net investments 1,015 997 1,215 422 (116)

NOTE

11

LH

C

AN

NU

AL

R

EP

OR

T

19

97

21

NOTE

12

NOTESConsolidated Companies

LH

C

AN

NU

AL

R

EP

OR

T

19

97

22

NOTE 13 NEWBUILDINGS AND NEWBUILDING OBLIGATIONS (NOK MILLION)

The newbuildings consist of:Name Yard Delivery Cost price

HUAL TRADER Daewoo Heavy Industries Ltd 1st quarter 1999 424HUAL TRANSPORTER Stocznia Gdynia SA 2nd quarter 1999 398Total 823

The contract prices are in USD. The newbuilding obligations in the amount of NOK 718 million consist of the unpaid portion of cost price as per year end.NOK 647 million is covered by agreed long term financing. Capitalised interest in 1997 amounted to NOK 4 million.

NOTE 14 OTHER CURRENT LIABILITIES (NOK MILLION)1997 1996

Holiday pay, tax withheld and social security 12 15Tax payable 6 4Tonnage tax 2 3Suppliers 28 80Short term loans 5 3Debt to pool partners and to external ship managers 59 4Accrued ship management and administrative expenses 87 41Accrued interest on long term debt 23 23Purchase of IVORY DAWN 0 69Miscellaneous current liabilities 3 16Total 225 258

NOTE 15 MORTGAGE DEBT/LEASE OBLIGATIONS (AMOUNTS IN MILLION)Currency Average Recorded

Specification per currency Currency amount exchange rate in NOK

USD 423 7.31 3,096

Repayment schedule:Less than one year 290Between 1 and 5 years 1,153More than 5 years 1,653Total 3,096

The debt is secured by first priority mortgages in vessels owned. The agreements contain no significant financial covenants.

NOTE

13

NOTE

14

NOTE

15

NOTESConsolidated Companies

NOTESConsolidated Companies

LH

C

AN

NU

AL

R

EP

OR

T

19

97

23

NOTESConsolidated Companies

NOTE 16 PENSION SCHEMELHC has its own pension fund for the employees. The fund provides for a retirement pension of 66% of annual salary (limited to 12G) at the time of retirementafter 30 years of service. In addition, the fund provides disability pension and pension to spouses and children. All pensions are coordinated with the expectedpayments from the State Pension Scheme.

In addition to the pension obligations covered by the insured scheme, the company has uninsured pension obligations. The obligations cover pensions for wagesabove 12G (up to 24G) and early retirement pensions.

Future pension obligations are estimated based on the following assumptions: 1997 1996

Discount rate 6% 6%Expected return on pension fund 7% 7%Wage regulation/inflation 4% 4%Pension regulation 2% 2%

This year’s pension cost is as follows (NOK million)Net present value of this year’s pension earnings (7) (4)Interest on pension obligations (11) (10)Expected return on pension fund 12 11Amortization 4 3Net pension cost (2) (0)

Pension obligations and pension assets per 31 December (NOK million):Obligations (191) (191)Assets 188 181Net pension assets/(obligations) (3) (10)

Effect of changes in estimates, difference between expected and actual return and changes in pension plan, not included in the accounts (30) (30)Net pension assets/(obligations) in the Balance Sheet (33) (40)

Number of persons:Retired 184 177Active 282 255

NOTE

16

LH

C

AN

NU

AL

R

EP

OR

T

19

97

24

NOTE 17 SHAREHOLDERS’ EQUITY (NOK MILLION)Non-

Share Legal distributable Minoritycapital reserve reserve Total interests

Equity per 31.12.96 60 720 1,614 2,394 87Transfers/additions/retirement 0 0 0 0 (87)Net profit of the year 0 0 335 335 0Dividend 0 - (120) (120) -Equity per 31.12.97 60 720 1,829 2,609 0

NOTE 18 ACTIVITY AREAS (NOK MILLION)Operating profit 1997 1996 1995

Gas 44 34 68Dry bulk 6 7 (2)Höegh Lines 134 152 147HUAL 327 163 115Unicool 122 4 (6)Ro/Ro 0 7 (3)General administrative expenses (46) (39) (34)Other (4) 24 (12)Total 583 352 285

The item “Other” contains commissions and other income and expenses not directly related to the operating result of any specific activity area

(NOK MILLION)Book value vessels 1997 1996 1995

Gas 136 149 165Dry bulk 723 66 77Höegh Lines 999 717 494HUAL 996 1,034 1,106Unicool 976 1,291 672Ro/Ro - - 77Total 3,830 3,256 2,591

For further details of the activity areas reference is made to “Report of the management” where the main elements of the operating profit, invest-ments and net non-interest bearing debt of each activity area are presented.

NOTE 19 RELATED PARTIESLeif Höegh & Co. ASA rents office space in Wergelandsveien 7 from Höegh Invest AS, a company owned by the Høegh family. The contract includes 3,672 m2,plus basement/storage rooms and garage at a total rent of NOK 12 million per year (1997). The lease has recently been renewed until 31 December 2004. Inaddition, the company rents, for representative use, Prinsessealléen 8 from Gadus AS, also a company owned by the Høegh family. The yearly rent is NOK 1.2million and the contract runs until October 1998. For details on the President and Board members’ stockholdings in the company, see “Shareholder relations”.

NOTE

17

NOTE

18

NOTE

19

NOTESConsolidated Companies

NOTESConsolidated Companies

NOTE 20 GUARANTEES AND LONG TERM T/C COMMITMENTSLHC Consolidated is, as a participant in limited partnerships, liable for uncalled capital of NOK 26 million.

LHC Consolidated guarantees USD 4.1 million (24.5%) of a loan drawn by Euro Marine Carriers B.V. (EMC) in connection with the financing of two vessels. EMCis owned 24.5% by Höegh Holdings B.V.

LHC Consolidated has long term timecharter commitments of USD 86 million expiring between 1998 and 2000.

NOTE 21 PROFIT PER SHAREProfit per share is calculated by dividing the consolidated net profit, excluding reversal of deferred tax (new shipping tax scheme) by the total number of sharesoutstanding. The number of shares was unchanged in 1997 and the consolidated companies have no convertible loans (dilution).

NOTE 22 SHARES IN JOINT VENTURES (NOK MILLION)Unicool 49.8%

1997

Current assets 292Fixed assets 1,038Current liabilities 121Long term debt 688Freight revenues 753Net profit (26 )

The note comprises the joint venture companies which individually represents more than 10% of either total assets, freight revenues or net profi of LHCConsolidated.

NOTE

20

NOTE

21

NOTE

22

LH

C

AN

NU

AL

R

EP

OR

T

19

97

25

NOTESConsolidated Companies

STATEMENT OF INCOMELeif Höegh & Co. ASA

LH

C

AN

NU

AL

R

EP

OR

T

19

97

26

(NOK million) Note 1997 1996

OPERATING INCOME AND EXPENSESFreight revenues and other operating income 98 871Voyage expenses 0 (184)Income on T/C-basis 98 687

Charterhire expenses 0 (8)Crew expenses (43) (94)Other operating expenses (49) (156)General administrative expenses 2 (3) (37)Operating profit before sales gains and depreciation 3 392

Ordinary depreciation 6 (2) (148)

OPERATING PROFIT 1 244

FINANCIAL INCOME AND EXPENSESInterest income 0 43Realised currency exchange gain/(loss) 1 7Unrealised currency exchange gain/(loss) (38) 5Interest expenses (22) (70)Other financial items 9 80Net financial items (50) 65

PROFIT BEFORE EXTRAORDINARY ITEMS (49) 309

Extraordinary items 1 1,484 10

PROFIT BEFORE TAX 1,435 319

Tax payable (3 ) (6 )Ordinary change in deferred tax 0 0Reversal of deferred tax 0 351Tax 3 (3) 345

NET PROFIT 1,432 664

PROPOSED ALLOCATION OF NET PROFIT:Dividends 120 320Group contribution (7) 0Transferred to legal reserve 0 343Transferred from non-distributable reserve 0 (40)Transferred to/(from) retained earnings 1,319 41TOTAL ALLOCATED 1,432 664

BALANCE SHEET 31 . 12Leif Höegh & Co. ASA

LH

C

AN

NU

AL

R

EP

OR

T

19

97

27

(NOK million) Note 1997 1996

AssetsBank deposits 35 64Marketable securities 4 10 844Receivables consolidated companies 58 196Bunkers, inventories and other assets 0 2Total assets 103 1,106

Shares in consolidated companies 5 3,122 455Other shares 5 657 829Loan to consolidated companies 6 167Other long term receivables 3 10Vessels 1 0 1,467Newbuildings 1 0 292Other fixed assets 6 54 71Total fixed assets 3,842 3,291

TOTAL ASSETS 3,945 4,397

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent portion of long term debt 7 2 159Current portion of newbuilding obligations 0 55Provision for dividends 120 120Other current liabilities 88 85Total current liabilities 210 419

Mortgage debt/lease obligations 7 21 1,042Newbuilding obligations 0 220Loan from consolidated companies 226 319Pension obligations 8 31 37Other long term debt 0 22Deferred tax 0 0Total long term debt 278 1,640

Share capital, 30 million shares at NOK 2.00 60 60Legal reserve 720 720Retained earnings 2,677 1,358Total equity 9 3,457 2,138

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 3,945 4,397

Guarantees and long term T/C commitments 10 56 619

LH

C

AN

NU

AL

R

EP

OR

T

19

97

28

(NOK million) 1997 1996

CASHFLOW FROM OPERATIONAL ACTIVITIESProfit before tax 1,435 319Tax paid (4 ) (5 )Loss/(gain) on sale of fixed assets (1,512) (11)Ordinary depreciation 2 148Movement in stocks, accounts receivable and accounts payable 149 (248)Movement in other short term items 2 0Effect of change in currency exchange rates 0 (5 )Sale/purchase of marketable securities 835 (156)Net cashflow from operational activities 907 42

CASHFLOW FROM INVESTMENT ACTIVITIESSale of fixed assets 2,220 95Payments made on newbuilding contracts 0 (264)Sale of shares in other entities 1,225 0Purchase of shares in other entities (2,969) 0Other investments 337 6Net cashflow from investment activities 813 (163)

CASHFLOW FROM FINANCIAL ACTIVITIESLong term loans raised 0 233Payments on long term loans (1,429) (193)Dividends paid (320) (120)Net cashflow from financial activities (1,749) 80

NET MOVEMENT IN CASH AND CASH EQUIVALENTS (29) (201)

Cash and cash equivalents per 01.01. 64 265

Cash and cash equivalents per 31.12 35 64

CASHFLOW STATEMENTLeif Höegh & Co. ASA

NOTESLeif Höegh & Co. ASA

NOTE 1 CHANGES IN COMPANY STRUCTUREIn connection with the introduction of the new tax system for shipowning companies all assets and liabilities related to the shipping activities qualifying for the newsystem were transferred to a new 100% owned subsidiary, Leif Höegh & Co Shipping AS.The transfer was made according to the rules for internal transfers. Thefigures in the Statement of Income and the Balance Sheet are therefore not comparable with previous years.

The amount under “Extraordinary items” of NOK 1,484 million is as a whole related to this transaction.

NOTE 2 GENERAL ADMINISTRATIVE EXPENSESThe administrative expenses of LHC related to marketing and operation of the vessels are included in “Voyage expenses” and “Other operating expenses”, respec-tively. The item “General administrative expenses” therefore consist of expenses related to the company’s top management and the president’s office in additionto the finance and accounting department.

Remuneration and wages paid by LHC: (NOK 1,000)Board directors (not LHC employees) 400President 1,683Audit fee 435Consultant fee auditors 305

Salaries and social expenses amounted to NOK 43 million, compared to NOK 37 million in 1996. The President has an agreement which provides him paymentof salary for a period of up to 24 months if he leaves the company before the age of 60. Salary from a possible new employment will be deducted from the amounthe is entitled to from LHC.

NOTE 3 TAX (NOK MILLION)1997 1996

Profit before tax 1,435 319Group contribution 4 0+/- Permanent differences 16 1+/- Changes in temporary differences (9 ) -Profit from internal transfers (1,484 ) -Profit subject to shipping taxation 0 (312)Tax basis (38) 8

Freight tax payable abroad 0 4Tax payable in Norway 0 2Total tax payable 0 6Changes to deferred tax 0 0Changes to deferred tax related to the new tax scheme for shipping companies 0 (35)Adjustment previous year 3 0TAX 3 (345)

Temporary differences: 31.12.97 31.12.96

Various short term items (1) 0Various long term items (4) (35 )Deficit carried forward (38) -Total temporary differences (43) (35)

Deferred tax 0 0Tax rate used 28% 28%

NOTE

1

NOTE

2

LH

C

AN

NU

AL

R

EP

OR

T

19

97

29NOTE

3

LH

C

AN

NU

AL

R

EP

OR

T

19

97

30

NOTESLeif Höegh & Co. ASA

NOTE

1NOTE 4 MARKETABLE SECURITIES (NOK MILLION)

Specification 1997 1996

Certificates 0 197Bonds 0 487Shares 10 160Total 10 844

NOTE 5 LONG TERM INVESTMENTS IN SHARES100% basis LHC per 31.12.97

No. of No. of Book valueCompany Share capital shares shares (1,000)

SHARES IN CONSOLIDATED COMPANIES:Leif Höegh & Co Shipping AS NOK 2,030,400,000 2,030,400 2,030,400 2,415,245Unicool Ltd USD 50,000,000 50,000,000 24,900,000 565,329Höegh Fleet Services AS NOK 1,000,000 1,000 1,000 1,000Leif Höegh Shipping Holding AS NOK 50,000 50 50 50Arcade Shipping Invest AS NOK 50,000 50 50 50Avrista Ltd GBP 2,000 2,000 1,500 0Höegh Holdings B.V. NLG 6,000,000 6,000 6,000 131,165Höegh Lines AS NOK 50,000 50 50 50Höegh Car Carriers AS NOK 50,000 50 50 50Liquimarine Gandria Shipping AS NOK 100,000 100,000 39,000 0Leif Höegh (U.K.) Ltd GBP 100,000 100,000 100,000 0Pacific Commerce Line Holding Ltd USD 499,904 500 500 8,819Subtotal 3,121,758

SHARES IN ASSOCIATED, JOINTLY OWNED AND OTHER COMPANIES:Bona Shipholding Ltd USD 28,374,434 28,374,434 9,530,253 653,197HUAL AS NOK 1,000,000 100 50 500Pacific Oriental Terminal Inc. USD 2,500 250 84 6Harpul Höegh Lines Pte. Ltd SGD 100,000 100,000 10,000 2Sea Trench Technology Holding AS NOK 782,500 7,825,000 433,200 3,000Other companies 141Subtotal 656,845

TOTAL 3,778,603

NOTE

4

NOTE

5

LH

C

AN

NU

AL

R

EP

OR

T

19

97

NOTESLeif Höegh & Co. ASA

NOTE 6 FIXED ASSETS (NOK MILLION)Accumulated Book Depre-

Cost price Addition Retirement depreciation value ciation31.12.96 1997 1997 31.12.97 31.12.97 1997

Containers 21 0 0 (4 ) 17 (2)Limited partnerships 22 0 (1 ) 0 21 0Other fixed assets 72 6 (2 ) (60 ) 16 (5)Total 115 6 (3) (64) 54 (7)

Other fixed assets consist mainly of cars and inventories. Depreciation on these assets (NOK 5 million) has been charged to operating profit as administrativeexpenses.

Investments in and sale of fixed assets: 1997 1996 1995 1994 1993

Investments (cost price) 6 319 689 0 0Sale (sales price) (1 ) (95 ) (36 ) 0 (924 )Net investments 5 224 653 0 (924)

31

NOTE

6

LH

C

AN

NU

AL

R

EP

OR

T

19

97

32

NOTE 7 MORTGAGE DEBT AND LEASE OBLIGATIONS (AMOUNTS IN MILLION)

Specification per currency Currency Amount Average Recorded exchange rate in NOK

USD 3.1 7.35 23

NOTE 8 PENSION SCHEMEThe company’s total pension obligations amounted at year end to NOK 31 million. Reference is otherwise made to Note 16 to the Consolidated accounts.

NOTE 9 SHARE CAPITAL (NOK MILLION)Share Legal Retainedcapital reserve earnings Total

Share capital per 31.12.96 60 720 1.358 2.138Group contributions 7 7Net profit 0 1.432 1.432Dividends (120) (120)Equity per 31.12.97 60 720 2.677 3.457

NOTE 10 GUARANTEES AND LONG TERM T/C COMMITMENTSThe company is, as a participant in limited partnerships, liable for uncalled capital of NOK 26 million.

The company guarantees USD 4.1 million (24.5%) of a loan drawn by Euro Marine Carriers B.V. (EMC) in connection with the financing of two vessels. EMC isowned 24.5% by Höegh Holdings B.V.

NOTE

7

NOTE

8

NOTE

9

NOTE

10

NOTESLeif Höegh & Co. ASA

AUDITORS ´ REPORTLeif Höegh & Co. ASA

LH

C

AN

NU

AL

R

EP

OR

T

19

97

33

LH

C

AN

NU

AL

R

EP

OR

T

19

97

INTEREST RATESThe investment in vessels is financed by USD mortgagedebt, both at floating and fixed interest rates. The distri-bution between floating and fixed rates was at year-end98% and 2%, respectively. However, interest rate futuresthrough 1999 covering USD 82 million at an average rateof 6.0% plus margin reduced the portion of floating ratedebt to 79%. Provided unchanged level of interest rate fixing, a change of 1% in the floating interest rate level willfor 1998 influence the consolidated company’s net financialitems by about NOK 21 million.

RATES OF EXCHANGEThe results of LHC are generated mainly in USD and thedifferent result items in NOK are therefore influenced bythe rates of exchange between USD and NOK. An increaseof NOK 0.10 in the average exchange rate will have the following effects on an annual basis (in NOK million):

Income on timecharter basis 18Operating and adm. expenses (5)Operating profit 14Foreign exchange gain/(loss) 12Interest expenses (3)Profit after financial items 23

Foreign exchange gain/loss refers to current assets and lia-bilities. The income statement will also be affected by yearend exchange rates through unrealised exchange losses orreversal of previously unrealised losses on long term items.The result will also be affected by the company’s placementof liquidity and possible forward contracts against USDrelated thereto.

CASHFLOWThe company’s cashflow is affected by realised and un-realised currency exchange gain/loss. By eliminating thisgain/loss the cashflow has been (NOK million):

1993 5651994 3211995 5681996 6111997 604

FREIGHT RATESThe effect of changes in net freights, or in T/C-income perday, based on the employment of the vessels in 1997, isshown in the table below:

ANALYTICAL INFORMATION

34

Floating 79%

F.R.A fixed 19%

Fixed 2%

1997

DEBT AND LEASE OBLIGATIONSDistribution by floating/fixed interest rate

Höegh(NOK million) HUAL Lines Unicool Total

1% change in freight rates 15 9 8 32

USD 1.000 change

in T/C-income 18 40 23 81

STATEMENT OF INCOME - USDBelow are shown the main figures in the statement of inco-me and balance sheet in USD, which largely eliminates theeffect of USD on the accounts in NOK.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

35

Statement of income

(USD million) 1997 1996 1995 1994 1993

Freight revenues, net 491 538 464 398 344

Operating profit before gain

on sales and depreciation 103 103 89 46 80

Operating profit 82 55 45 15 44

Net financial items (12) (5) 2 1 10

Profit before

extraordinary items 70 50 47 16 54

Balance Sheet 31.12

(USD million) 1997 1996 1995 1994 1993

Current assets 170 185 198 154 124

Vessels and other fixed assets 815 664 635 608 429

Total assets 985 849 833 762 553

Current liabilities 95 115 93 114 75

Long term debt 487 379 392 341 179

Deferred tax 3 0 58 52 60

Booked equity

incl. minority interests 400 355 290 255 239

Total liabilities and

shareholders equity 985 849 833 762 553

1991 1992 1993 1994 1995 1996 1997

1

2

3

4

5

6

7

8

4321432143214321432143214321

DEVELOPMENT IN USD INTEREST RATESQuarterly average 3 months LIBOR

1991 1992 1993 1994 1995 1996 1997

1

2

3

4

5

6

7

8

4321432143214321432143214321

DEVELOPMENT IN RATE OF EXCHANGENOK/USD

LH

C

AN

NU

AL

R

EP

OR

T

19

97

The price of the LHC shares quoted on the Oslo StockExchange increased during 1997 by 11.1%% from NOK 135 to NOK 150. The share was traded at its lowest(NOK 125) in April, and at its highest (NOK 180) inOctober, which also is “all time high”. The Oslo StockExchange shipping and total index increased during theyear by 39.8% and 31.5%, respectively. The stock marketvalue of LHC per 31 December 1997 was NOK 4,500 million, which is an increase of NOK 450 million from theprevious year.

During 1997, 24.9 million shares were traded (18.1million in 1996). At year-end the number of shareholderswas 1,594, up from 1,546 in 1996. Foreign shareholdersincreased their ownership from 6.3% to 8.2%.

As in previous years the employees were offered tobuy shares in the company at a value of NOK 5,000 forNOK 4,000. 114 employees accepted the offer and bought3,420 shares.

The company’s policy is to give the shareholders agood return on their investment through a combination ofdividend and capital appreciation of the shares. The pay-ment of dividend will depend on the company’s earningsand investment requirements in a volatile business. TheBoard of Directors has proposed to the General Meeting topay a dividend of NOK 4.00 per share for 1997 (NOK 10.67 in 1996, including an extraordinary dividendof NOK 6.67 in the form of shares in Bona ShipholdingLtd). The dividend ratio of 36% is slightly higher than previous years.

Shares owned or controlled by the Høegh familyrepresented at year-end 52.9% against 53.3% by the end of1996. The other main shareholders in the company arelisted in the table.

The share price at year-end gives a price/cashflowratio of 11.3 and a price/earnings ratio of 13.4.

LHC seeks to keep the shareholders and the financialcommunity updated on the company’s activities throughregular information bulletins and meetings in Norway andabroad. Dates for the publication of quarterly reports appear on the inside of the cover page.

36

SHAREHOLDERS IN LEIF HÖEGH & CO. ASA PER 31. DECEMBER

Shares owned or controlled

by the Høegh family: 15,881,550 (52.9%)

Other shareholders:Storebrand Livsforsikring 1,539,250

Folketrygdfondet 1,200,000

Leif Höegh’s Stiftelse 900,000

Kommunal Landspensjonskasse 874,000

Vital Forsikring 744,100

Gjensidige Livsforsikringsselskap 605,405

State Street Bank & Trust 528,743

Verdipapirfondet Avanse 523,800

Verdipapirfondet Avanse Kapital 455,700

Aksjefondet Odin Norge 403,100

Morgan Guarantee Trust Co. of New York 364,978

Norsk Hydros Pensjonskasse 288,000

Orkla 280,800

Morgan Stanley Trust Company 230,116

Verdipapirfondet Avanse Spar 212,700

Oslo Kommunale Pensjonskasse 212,550

Gjensidige Skadeforsikring 190,246

Storebrand AMS 165,150

Boston Safe Dep. & Trust (USA) 152,552

Skandinaviska Enskilda Banken 121,650

Sub-total 9,992,840 (33.3%)

1,562 shareholders owning less

than 121,000 shares 4,125,610 (13.8%)

Total 30,000,000 (100.0%)

SHARES OWNED AND CONTROLLED BYBOARD MEMBERS AND THE PRESIDENTOF LEIF HÖEGH & CO. ASA

Truls Holthe 1,000

Einar Kloster 1,000

Karl Otto Gilje 1,000

Thor Jørgen Guttormsen 225

Total 3,225

DISTRIBUTION OF SHARES PER 31 DECEMBER 1997

Shareholders SharesNo. % No. %

1 - 100 538 33.7 26,532 0.1

101 - 1,000 703 46.1 298,072 1.0

1,001 - 10,000 230 14.4 738,463 2.5

Mer enn 10,000 123 5.8 28,936,933 96.4

Totalt 1,594 100.0 30,000,000 100.0

SHAREHOLDER RELATIONS

LH

C

AN

NU

AL

R

EP

OR

T

19

97

37

2

4

6

8

10

12

'97'96'95'94'93'92

3

6

9

12

15

'97'96'95'94'93'92

5

10

15

20

25

'97'96'95'94'93'92

2

4

6

8

10

12

'97'96'95'94'93'92

EARNINGS PER SHARENOK

PRICE/EARNINGS RATIO

CASHFLOW PER SHARENOK

PRICE/CASHFLOW RATIO

1997 1995 1996 1997 1998

190

180

170

160

150

140

130

120

110

100

90

80

LHC STOCK DEVELOPMENT03/01/94 - 16/03/98 by days

REPORT OF THE MANAGEMENT

LH

C

AN

NU

AL

R

EP

OR

T

19

97

38

In an increasingly competitive environment some of theimportant criteria for success are ambition, focus and thewill to take responsibility. In order for the company to continuously be able to deliver services that add value toour customers and returns to shareholders, a solid frame-work must be in place. During 1997 we have focused onenhancing the company's management systems and resour-ces. This includes strategy and performance targets, cor-porate structure and human resources.

Goals should be realistic, but challenging. It is my beliefthat we are on the right track in this regard while at the sametime maintaining a prudent commercial and financial risklevel. We have set the following financial goals in order to becompetitive with other investment opportunities:

- 15% return on equity- Minimum 25% dividend payout- Minimum 40% equity

Our overall strategy is to be an efficient industrial shippingoperator in selected segments where we can add value toour customers through our ability to build competitivelogistical systems and reach optimal economic operativescale.

Even though the result for 1997 was satisfactory, westill have some way to go before reaching our long-termperformance targets.

To implement our strategy and achieve our goals wehave restructured LHC from being an integrated organi-sation to become a group of self-sustained business units.

Thor Jørgen Guttormsen

This transformation has been vital in order to create thefocus and involvement necessary to succeed. Today wehave an appropriate diversification. A dynamic portfoliogives better opportunities for high sustainable return oncapital and we will continue to look for opportunities todevelop new business areas.

Shipping is a capital intensive industry and financialflexibility will always be important. However, what createsexcellence is the people working in the organisation.Consequently we have strengthened the organisation con-siderably over the last few years. Continually improving theorganisation and attracting excellent people can only bedone by creating a working environment that satisfies theindividuals' job needs. We will continue to focus on this ashere lies our key to success.

Goals, strategy, structure and human resources need tooperate in conjunction. Good management systems ensurethis and are elements in achieving superior results. We haveworked hard to define performance indicators and areporting system based on the parameters for our goals.Standardised use of information and communicationtechnology will play a vital part in this process.

1998 will bring many challenges, but we believe wehave prepared ourselves in a responsible manner.

Thor Jørgen GuttormsenPresident

Thor Jørgen Guttormsen

PRESIDENTThor Jørgen Guttormsen

PRESIDENT'S STAFFNiels R. Bugge (Board Secretary)

Erik A. GrinnesTormod Skau

Øyvin A. BrøymerEXECUTIVE VISE PRESIDENT

Erik NormanFINANCE/ACCOUNTING

Trond Evju

DRY BULK/PURCHASE & SALE(100%)

Stephan Tschudi-Madsen

GAS (100%)

Erik Falkenberg

HÖEGH LINES(100%)

Johannes Tvedte

HÖEGH FLEET SERVICES AS(100%)

Leif O. Høegh

LEIF HÖEGH (U.K.) LTD(100%)

Karl Kristian Hauger

HUAL AS(50%)

Mats Jansson

UNICOOL LTD(49.8%)

Ragnar Belck-Olsen

BONA SHIPHOLDING LTD LTD (33.6%)

Petter HatlemSTRATEGY/BUSINESS DEVELOPMENT

Charles JensenORGANISATION

EXECUTIVE COMMITEEWestye Høegh

Thor Jørgen GuttormsenØyvin A. Brøymer

Leif O. Høegh

LH

C

AN

NU

AL

R

EP

OR

T

19

97

39

Øyvin A. Brøymer Charles Jensen Erik Norman Niels R. Bugge

GAS

Since 1968 LHC has built up

extensive experience in the

transportation of liquid gas,

Liquefied Natural Gas (LNG) and

Liquefied Petroleum Gas (LPG).

The present fleet consists of

two LNG/LPG vessels, NORMAN

LADY (50% owned) and HÖEGH GANDRIA (39% owned) with a

cargo tank capacity of 87,700 m3 and 125,900 m3, respectively.

In 1997 NORMAN LADY was employed in the transport-ation of LNG from Abu Dhabi to Spain under a timecharterto A.P. Møller. The charterer has the option to extend thetimecharter until 1999, when the vessel enters into a con-tract with Enagas SA for the transportation of LNG fromTrinidad to Spain. This contract is for 13 years and willautomatically be extended by further 7 years provided theage and the condition of the vessel does not preclude thevessel from trading.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

40

Stephan Tschudi-Madsen

HÖEGH GANDRIA is operating under a 20 yeartimecharter until the end of 2006 to the Indonesian state-owned oil company Pertamina. The charterer uses the vessel for transportation of LNG from North Sumatra toSouth Korea. The vessel was drydocked in 1997 and passedthe 20-year survey without any steel renewals or othermajor problems.

LHC gives high priority to quality and proper main-tenance of the gas vessels. This will be of vital importanceif NORMAN LADY continues to operate to an age of 46years, which will be considerably longer than any other vessel in the history of the company. This will bring newchallenges for the people involved in technical and marineoperations both ashore and on board.

MARKET CONDITIONSNatural gas is gaining importance in global energyconsumption. This is primarily due to a combination ofavailability, environmental aspects and price. Transpor-tation of natural gas as LNG is used when geographicdistances and other conditions make it uneconomic to usepipelines. The international trade in LNG increased byabout 5% in 1997.

Five LNG vesels were delivered in 1997, and at the endof the year the world LNG fleet totalled 106 vessels with acargo capacity of 11.2 mill. m3. In connection with newLNG prospects a further 10 LNG vessels were orderedduring 1997, bringing the total orderbook to 23 vesselswith a cargo capacity of 2.9 mill. m3.

Consolidated operating profit before sales gains

and deprciation NOK 727 million

MARKET OUTLOOKThe international trade in LNG is forecast to grow byabout 25% between now and the year 2000. Most of thisincrease is attributed to the launching of new projects inTrinidad, Qatar, Oman and Nigeria.

In the Far East, countries like Japan, South Korea andTaiwan have continued to import increasing volumes ofLNG. Due to the currency crisis in East and South EastAsia, a number of new projects in this region have been puton hold. Several projects for import of LNG by India arecurrently being assessed, however, and China also has thepotential to become a major importer of LNG. A numberof gas consuming countries around the Mediterranean,such as Spain, Portugal, Greece and Turkey, are also gainingimportance as LNG importers. These gas markets hold alot of promise for growth, and part of this growth will becovered by LNG. Greece plans to start import of LNG fromAlgeria during 1999.

The partners in Trinidad’s LNG project are planning toexpand the production capacity. In addition to new markets, the existing customers seem to be interested inimporting further quantities.

Increased focus on the environment in a number ofcountries will promote natural gas as an energy source. Forseveral of the large gas discoveries made during the pastyears, transportation of the gas in the form of LNG is themost likely technical solution. This should provide for aconsiderable increase in seaborne trade of LNG over thecoming years.

The short term LNG trade has grown rapidly since1993. In 1997 LNG was transported for the first time fromAustralia to USA, a voyage covering as much as 11,300nautical miles. The short term LNG trade now accounts foraround 5% of the total trade in LNG. One of the most active buyers has been South Korea. The present currencycrisis in the country has already led to a reduction in importof natural gas, which primarily will hit import of short termLNG. Larger volumes of LNG will therefore become

GA

SS

8%

available for other markets. It is expected that anotherimportant country, Spain, will maintain/renew its purchasesof short-term LNG. LHC therefore hopes to keep NORMAN LADY employed until the vessel enters the longterm timecharter to Enagas SA in 1999.

LHC is continuously assessing new LNG projects.

RESULTSOperating profit before gain on sales and depreciation wassomewhat higher than in 1996 due to the strengthening ofUSD against NOK. HÖEGH GANDRIA drydocked inMay 1997, while NORMAN LADY drydocked in 1996.None of the vessels will drydock in 1998. With a similarrate of exchange between USD and NOK the result will besomewhat better.

(NOK million) 1997 1996 1995 1994 1993

Operating profit:

Freight revenues 89 80 112 126 115

Voyage expenses 0 0 0 0 0

Income on T/C-basis 89 80 112 126 115Charterhire expenses 0 0 0 0 0

Operating expenses (33) (30) (28) (32) (33)

Operating profit before salesgains and depreciation 56 50 84 94 82Gain on sale of vessels 0 0 0 0 0

Depreciation (13) (16) (16) (16) (16)

Operating profit 44 34 68 78 66

Book value vessels 136 149 165 181 197

Investments in vessels - - - - -

Net non-interest bearing debt 1 3 6 4 -

LHC's dry bulk fleet changed

during 1997 by the sale of the

Capesize vessel IRON MASTER

and the purchase of two

modern Capesize vessels: SG

ENTERPRISE and SG PROSPERI-

TY. Both vessels are of 211,000

dwt. The Capesize vessel MERCHANT PRESTIGE will continue

her timecharter through 1998 with LHC’s option of one more

year.

SG ENTERPRISE and SG PROSPERITY, built in 1996 and1997 respectively, are operating under timecharters of up to15 years to SCIT (Chartering) Limited, a company in theShougang Group in Hong Kong. The vessels are primarilyemployed in the transporation of iron ore from SouthAmerica to China on behalf of the Chinese steel millShougang.

LHC’s bulk operation increased in 1997 primarily dueto cargo commitments from South East Asia to theContinent, which led to several fixtures of Capesize vesselsupto six months’ duration.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

42

A long term cargo contract for the transportation ofcoal from Australia to the Continent was agreed in 1997.This is an important part of the company’s strategy to secure cargoes from the Pacific area to the Atlantic. As aconsequence of this contract, further tonnage will be char-tered in 1998.

MARKET CONDITIONSThe improvement in freight rates in the dry bulk marketduring the first ten months of 1997 was the result of stronggrowth in global industrial activity. This was particularlythe case for world steel production, which set a new recordwith a growth of more than 6%. Seaborne trade in iron oreand metallurgical coal increased by 7.7% and 5.6% respec-tively.

The Capesize market benefited from this development,but the recovery in freight rates was modest due to a largenumber of newbuildings delivered during this period.

Seaborne trade in steam coal increased by about 4% in1997, which was lower than anticipated. The Panmax market was also influenced by a decline in grain shipmentsparticularly to the Far East. At the same time a large num-ber of newbuildings were delivered from the yards.

Towards the end of the year the crisis in Asia started tohave an impact on the dry bulk market. Japan’s exports ofsteel products to neighbouring Asian markets fell strongly,and as domestic demand was weak, Japanese steel produc-tion showed a declining trend. Shipping volumes of bothsteam coal and grain to the Asian markets declined as well.It is estimated that demand for dry bulk transportationincreased by 3% on an annual basis in 1997.

Scrapping of bulk and combination carriers was lowerthan in the year before and was not enough to outpace thelarge number of newbuildings. The pure bulk carrier fleetthus increased by 4.5% in 1997, whereas the total dry bulkfleet incl. combination carriers increased by 3.8%.

Trond Evju

DRY BULK

MARKET OUTLOOKIt is expected that the dry bulk market will be influenced bythe crisis in Asia for most of 1998. Projections of growthrates for the world economy are steadily being revised, andthe latest forecasts are indicating a fall from 4.1% growthin 1997 to below 3% in 1998. The growth in world steelproduction is therefore likely to be relatively modest. Thisapplies particularly to East and South East Asia, but also toJapan where exports of steel products to other Asian markets are expected to fall further. Toghether with a con-tinued weak domestic market in 1998, Japan’s steel produc-tion is likely to be lower. Seaborne trade in important rawmaterials as iron ore, metallurgical coal and steam coal istherefore not expected to grow much in 1998.

As regards the grain market, it is expected that goodcrops in USA will lead to an increase in grain exports bymore than 5% in the current grain year. It is furthermoreprobable that the impact of El Niño has disturbed crops inother parts of the world, which will lead to longer trans-portation distances. This will be favourable for the demandfor Panmax tonnage.

The growth in the dry bulk fleet will slow in 1998,particularly in the Capesize segment. Based on an increasein scrapping of older, inefficient vessels, the fleet of purebulk carriers is expected to grow by only 1.5%. The con-tracting activity has already slowed down, which, com-bined with the age profile of the existing fleet and new measures from classification societies regarding the stan-dard of dry bulk vessels older than 15 years, can produce abeneficial effect on the supply of tonnage over the comingyears.

TØ

RR

BU

LK

RESULTSOperating profit before gain on sales and depreciation waszero compared to NOK 19 million in 1996. The main reasonfor the weak result was a very expensive drydocking ofIRON MASTER. The vessel was sold in September 1997with a sales gain of NOK 17 million. The two new vessels, SG ENTERPRISE and SG PROSPERITY, were delivered endNovember/beginning December and entered directly intolong term charterparties.

(NOK millioner) 1997 1996 1995 1994 1993

Operating profit:

Freight revenues 91 38 47 69 34

Voyage expenses (8) (2) (1) (3) (5)

Income on T/C-basis 82 36 46 66 29Charterhire expenses (58) (1) (12) (52) (32)

Operating expenses (24) (16) (24) (15) 0

Operating profit before salesgains and depreciation (0) 19 10 (1) (3)Gain on sale of vessels 17 0 0 0 0

Depreciation (11) (12) (12) (9) 0

Operating profit 6 7 (2) (10) (3)

Book value vessels 723 66 78 90 0

Investments in vessels 725 - - 99 -

Net non-interest bearing debt 2 (1) 0 2 -

Höegh Lines cover all commer-

cial activities within the

Handysize segment. This inclu-

des vessels deployed in the

liner and open hatch/contract

operations, as well as charte-

ring in and out tonnage of this

type when required.

THE LINER SERVICEThe liner service maintained essentially the same servicepattern in 1997 as in previous years between NorthAmerica east coast, the Red Sea, the Indian sub-continentand South East Asia.

The tonnage harmonisation plan was carried out bythe withdrawal of HÖEGH CLIPPER from the liner ser-vice. In order to maintain the sailing frequency, adjustmentsto the service pattern in South East Asia and to India weremade during the year. HÖEGH CLIPPER was transferredto the Open Hatch/Handysize bulk sector and entered intoa 12 months timecharter to Rickmers Linie.

All liner vessels were drydocked in 1997 as planned.The drydockings took longer than anticipated, with sub-sequent additional offhire. Otherwise the liner vessels operated satisfactorily in 1997, with minimal technical off-hire.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

44

OPEN HATCH/CONTRACT SERVICESThe US/Canada west coast to Japan service under the nameof Pacific Commerce Line (PCL) continued operation in1997 with the same service pattern of two sailings permonth. Exports of forest products from USA/Canada toJapan fell considerably during the year, particularly duringthe second half. The situation became worse as two ofPCL’s major customers got financial problems with sub-sequent changes of ownership. Lower shipping volumes inthis period led to a reduction in the sailing frequency to onesailing per month. Some of the vessels were therefore char-tered out for shorter periods or operated in the spot market.

HÖEGH MISTRAL and MASCOT continuedemployment under the cooperation agreement withCompanhia de Navigacao Norsul in Rio de Janeiro. Thisoperation today employs four vessels. All the vessels tradebetween South America east coast and Northern Europe onthe northbound leg, whereas two of the vessels trade viaNorth America east coast and South America west coast onthe souhtbound leg.

The service between Chile and Northern Europe,which was based on a freight contract with Chile’s two largest shippers of forest products, ended in the first quarter of 1997. This contract was subsequently replacedby a new freight contract with the same shippers for trans-portation of forest products from Chile to the Far East.HÖEGH MARLIN was employed in this service.

The last Open Hatch newbuilding, HÖEGH MORUS,was delivered in September 1997. The vessel then enteredthe PCL operation.

SAGA CHALLENGER completed the first year of afive-year timecharter to Nippon Yusen Kaisha. RICKMERS HOUSTON (HÖEGH CLIPPER) enteredinto a new 12-month timecharter to Rickmers Linie and thetimecharter for RICKMERS TIANJIN (HÖEGH CAIRN)was extended by 12 months.

Erik Falkenberg

HÖEGH LINES

HÖ

EG

H

LI

NE

S

24%

HÖEGH MARLIN and MASCOT were drydocked asplanned. The vessels performed satisfactorily in 1997, withminimal technical offhire, apart from four days forHÖEGH MISTRAL due to a collision in the EnglishChannel.

MARKET CONDITIONSThere were considerable variations in 1997 in the develop-ment of the economies in the various areas served by theliner service. This was strengthened during the last monthsof the year due to the currency crisis in Asia. In USA theyear was characterised by high economic activity, low infla-tion and low unemployment. In Saudi Arabia the economywas boosted by higher oil revenues, whereas the Indianmarket suffered from lower economic activity than expec-ted. The crisis in Asia led to a slowdown in economicgrowth in this area in the second half of the year, with falling import requirements.

The liner service’s export volumes from North Americawere relatively stable during the first half of 1997, but fellsignificantly in the second half of the year, particularly toIndonesia. The bulk shipments of rice to the Middle Eastended in the first half, as a change of discharge port did notfit in with the service pattern. In other respects, the volumesto the Middle East were stable in 1997, whereas the Indianmarket was characterised by lower import volumes. As aconsequence of all these conditions, capacity utilization ofthe vessels fell considerably towards the end of the year.

As regards import volumes to North America thecargo support for the liner service remained stable for mostof the year, except for cocoa bean volumes which during theseason were higher than in 1996. However, capacity utili-zation of the vessels was not satisfactory during parts of theyear.

During 1997 there was downward pressure on ratelevels for break bulk as well as for containerized cargoesboth outbound and inbound for the liner vessels.Competition from the container operators was strong in1997 due to increased capacity.

Demand for Open Hatch tonnage was stable duringthe first half of 1997, but fell significantly during the secondhalf. The market for forest products is very sensitive to fluctuations in the economy. As a consequence of the weakeconomic situation in Japan and the decline in economicactivity in most of the other Asian countries, market con-ditions in the forest product industry deteriorated signifi-cantly in the second half of the year.

The market for regular Handysize dry bulk vessels fellin line with the overall dry bulk market during the secondhalf of 1997. The economic situation in Asia, and in parti-cular the decline in demand from the construction industry,led to reduced imports of minor dry bulk commodities suchas cement and steel products. At the same time there was alarge increase in Handysize newbuildings in 1997. Ratelevels therefore fell for all types of Handysize dry bulk ton-nage, both regular tonnage and specialized tonnage such asOpen Hatch vessels with gantry cranes, particularly in thelast quarter of the year.

MARKET OUTLOOKEven prior to the currency crisis in Asia it was expected thatthe growth in the US economy in 1998 would be somewhatweaker than the strong growth of 3.8% in 1997. It is pos-sible that the effects of the crisis will reduce the growth ratefurther, as the expected decline in US exports of manufac-tured goods to some of the Asian countries, also due to thestrong USD, will hit US manufacturing plants, employmentfigures and investment activity.

The last forecasts therefore suggest a growth in the USeconomy of around 2.5% in 1998. This indicates a weakgrowth in personal consumption, which again will result ina weak growth in imports. However, it is expected that theAsian countries will make use of their improved competi-tiveness to boost exports, which will have a positive impacton shipping volumes to North America.

Consolidated operating profit before sales gains

and deprciation NOK 727 million

LH

C

AN

NU

AL

R

EP

OR

T

19

97

46

HÖEGH LINES

It is projected that economic growth in Asia will be hal-ved from 1997, which will have a negative impact onimport volumes of most types of cargoes to this region.Lower oil revenues are likely to lead to reduced importvolumes also in the Middle East. Economic activity in Indiais expected to recover somewhat, but export growth is likely to continue to be modest in 1998.

Additions to the multipurpose vessel fleet are limited,but competition from the container operators is expected tocontinue in 1998 due to increased capacity.

Demand for both Open Hatch vessels and regularHandysize dry bulk tonnage is expected to continue to beweak in 1998. World seaborne trade in most minor drybulk commodities will be influenced by the economic crisisin East and South East Asia, as well as the weak economicsituation in Japan.This applies particularly to commoditiessuch as forest products, cement and steel products. In addi-tion, crops of some agricultural products in South East Asiahave been negatively influenced by the El Niño weather

phenomenon, which could lead to reduced exports.This weak demand for tonnage will be met by a large

addition to the fleet of regular dry bulk tonnage in 1998.This applies particularly to the so-called Handymax seg-ment. The market for this tonnage segment is thereforeexpected to remain weak for most of 1998.

Deliveries of new Open Hatch vessels in 1998 will pri-marily replace vessels built in the 1970-1975 period. Thelong term outlook for transportation of forest products isstill promising, particularly for value-added products suchas pulp and paper. These products’ share of the total sea-borne trade in forest products is steadily increasing.

Liner

Combi

Express

Chile- F.E

PCL

HÖ

EG

H

LI

NE

S

24%

Liner

Combi

Express

Chile- F.E

PCL

Consolidated operating profit before sales gains

and deprciation NOK 727 million

RESULTSOperating profit before gain on sales and depreciation forHöegh Lines was lower than in 1996 both for the liner andOpen Hatch segment. Nine vessels drydocked in 1997against only three in 1996.

(NOK million) 1997 1996 1995 1994 1993

Operating profit:

Freight revenues 975 1,050 1,026 1,070 1,008

Voyage expenses (523) (593) (583) (610) (459)

Income on T/C-basis 452 457 443 460 549Charterhire expenses (3) (10) (2) (4) (11)

Operating expenses (276) (219) (218) (257) (235)

Operating profit before salesgains and depreciation 173 228 223 199 303Gain on sale of vessels 0 0 0 0 0

Depreciation (39) (76) (76) (87) (86)

Operating profit 134 152 147 112 217

Book value vessels 999 717 494 568 655

Investments in vessels 321 299 - - -

Net non-interest bearing debt 30 48 39 21 -

LH

C

AN

NU

AL

R

EP

OR

T

19

97

HÖEGH FLEET SERVICES AS

Höegh Fleet Services AS (HFS)

was established as a wholly-

owned subsidiary of LHC in

1995. The main objectives of

HFS are to develop operational

management models for ves-

sels in which LHC holds intere-

sts, recruit and train officers and crew and advise associated

companies on operational matters to the extent appropriate.

In addition, technical consultancy services and project devel-

opments are undertaken.

48

Johannes Tvedte

MARITIME PERSONNELPart of HFS’ long term strategy is internationalization ofthe fleet, and during 1997 another ten vessels and onenewbuilding were fully manned with Philippine crew. HFS’engagement in the Philippines increased considerablyduring the year, and as a consequence the development ofHFS’ organisation and systems in Manila was given firstpriority. This is confirmed by the establishment of a manning office in Manila in 1997.

MANAGEMENTThe performance of the fleet was satisfactory in 1997without major unforeseen technical offhire. However, threevessels had to enter shipyard for repairs of damages causedeither by collision with a lock gate or other vessels.

The car decks were extended on a car carrier to in-crease the transportation capacity by about 100 car units,an investment which has already proved to be profitable.

Continuous maintenance on board is necessary tomaintain the standard of the fleet. The employment of highly qualified officers and crew is also a key factor.

16 ordinary dockings were carried out in 1997, 14 inthe Far East and two in Europe.

The Global Maritime Distress Safety System (GMDSS)was installed on board 11 vessels in 1997. The IT-systemsdeveloped by the “Maritime IT Ship Operation” researchprogramme was installed for further test purposes on boardHÖEGH MORUS.

PURCHASINGIn 1997 HFS started a project with focus on the purchasingprocess, where key areas will be analysed for the purpose ofimproving and simplifying the process. As a result the indi-rect and direct purchasing costs will be reduced and thequality and efficiency improved.

GENERALAt the end of 1997 HFS was responsible for the technicaland crewing management of a fleet of 35 vessels with anaverage age of 13.5 years.

During the year the fleet increased by three reefer vessels, one open hatch vessel and two bulk carriers. Onebulk carrier was sold and delivered to new owners. In addi-tion, HFS has the overall responsibility for four reefer vessels and one car carrier which are managed by others.Including these vessels, the average age of the fleet is reduced to 12.8 years.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

49

RESEARCHHFS has continued the pilot ship project in the researchprogramme “Information Technology in Ship Operation”.After HÖEGH MORUS was delivered from the yard inSeptember 1997, the information systems have been underfield testing in normal ship operation on board both pilotships, SAGA CHALLENGER and HÖEGH MORUS. Thecomputer network onboard, including the link between theshipboard management systems and the instrumentationsystems, have been working well. The link between shipand shore has also been verified.

The information systems onboard represent an infra-structure for collecting and organising data. Productiveapplication of this technology is based on an integrationinto the company’s information flow and decision pro-cesses. HFS considers the development of such applicationsto have a promising potential and has decided to participatein the new research programme “Ship Operation and ShipTechnology” through an LHC-led project called “Addedvalue in technical and commercial ship operation throughimproved work processes”.

NEWBUILDINGS/PROJECTSThe open hatch vessel HÖEGH MORUS was delivered on September 1, 1997 from Mitsui Engineering &Shipbuilding Co. Ltd, Japan. Various new projects havebeen studied during the year, related to the traditional shiptypes in the fleet as well as unconventional types.

HFS will supervise the building process of the two carcarriers which have been contracted at Daweoo HeavyIndustries Ltd, South Korea and Stocznia Gdynia SA,Poland. The vessels are scheduled for delivery in December1998 and June 1999, respectively.

SAFETY AND QUALITYBy the end of 1997 HFS’ head office and 24 vessels in theHFS fleet had obtained Det Norske Veritas’ SBM Class(Ship Board Management) according to the rules for Safetyand Environmental Protection (SEP) certification.Certification of the remaining vessels in the fleet is to becarried out during the first half of 1998. The SEP require-ments in DnV’s SBM Class will cover the requirements inthe International Safety Management (ISM) Code. HFSconsider certification to be an important part of the safetyand quality work. The ISM Code will become mandatoryfor tankers, gas carriers, bulk carriers and passenger vesselsfrom 1 July 1998 and for other types of vessels from 1 July2002.

In HFS’ operational system certain elements have beenincluded which will increase the awareness and alertness ofthe employees. This is part of HFS’ aims to limit the num-ber of injuries to personnel and damage to environment,vesels and cargo.

INSURANCEThere is still keen competition in the marine insurance market. Together with good claims records, this resultedboth in a reduction in premiums and improvement of termsat renewals. Deductibles are still at a relatively high level,but assuming high operating standards and few claims,high deductibles have only a modest impact on operatingcosts.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

ENVIRONMENT

50

HFS aims to utilize its expertise to carry out a proactivepolicy with regard to environment and safety.The environment protection and preventive measures in thefleet will be continued according to the same guidelineswhich were described in the annual report for 1996.

The complexity in relation to the environment is illustrated by Figure 2, which gives a survey of activities onboard and their consequences in the form of possibledischarges, emissions and damages. HFS must considerthese on a daily basis, with measures as described in the following example:

ENERGY PRODUCTIONCO2 emissions are much focused upon at present. Theworld natural cycle is approximately 520 billion tons peryear. In addition 18 billion tons are created by the use offossil fuels (oil, coal, gas). Of this 7 billion tons are reabsorbed, whereas 11 billion tons stay in the atmosphereand contribute to the greenhouse effect. On an annual basisinternational shipping uses 85 million tons of oil, producing272 million tons of CO2, or approximately 1.4% of the glo-bal emission. The HFS fleet’s share is approximately370,000 tons bunker, producing 1.1 million tons of CO2.

Improved technology and efficiency, larger and betterutilized hulls, better structuring of cargoes and trading pattern to reduce the number of ballast days, weather routing etc. has lead to specific fuel consumption per ton-mile of transported goods in larger dry cargo vessels havingbeen reduced to about one third of that which was normalonly 30 years ago. Figure 1 illustrates this situation for thecompany’s car carriers with building years from 1958 to1999. The column to the far left shows the company’s twofirst car carriers which had steam turbine propulsion. The consumption is calculated based on full cargo andapproximately the same speed for all the vessels.

HFS works actively with supervising the conditions ofhulls, machinery and propellers to be able to reduce fuelconsumption and consequently CO2 emission.

For the “acidic” climate gasses, NOx and SOx, this year’s conference of the International MaritimeOrganization (IMO) gave few new results. Main enginesconstructed later than 1 January 2000 will be subjected tocertain maximum values of NOx emission. The adoptedglobal limitation of 4.5% S (sulphur) in the fuel will haveno practical influence.

20

40

60

80

100

2000199519901985198019751970196519601955

FUEL CONSUMPTION in grammes/car/Nm.

COOLING MACHINERY, FIRE EXTINGUISHING EQUIPMENTIn line with international agreements the company has previously phased out the most ozone damaging CFC(chlorine/fluorine/carbon) gases, and is now using Freon-22as primary cooling agent. HFS works actively to incor-porate new technology and other cooling agents for futurenewbuildings.

HFS does not have any Halon fire extinguishing equip-ment on any of the vessels operated by the company.

PERSONAL HYGIENEThe vessels are equipped with sewage systems and garbageincinerators complying with IMO regulations. At presentthe company is working on a “Garbage handling plan” foreach individual vessel. This will become mandatory by 1July 1998.

OPERATIONS AND TANK CLEANINGNone of the HFS vessels carries oil or chemical cargoes inbulk. Waste oil from the engine room is collected and burntin the main engine or in the incinerator. Garbage from personnel and cleaning of cargo holds are incinerated.Special refuse is delivered ashore.

Fig. 1

LH

C

AN

NU

AL

R

EP

OR

T

19

97

Energyproduction

Cargoevaporation

Refrigerantplants

Fireextinguishing

Hotel

Operational,Tank cleaning

AccidentsHull-damage

Antifouling

• Greenhouse effect • Acid rain• Possible injury to human life

• Greenhouse effect• Acid rain• Ozone depletion• Possible injury to human life

• Greenhouse effect• Ozone depletion• Possible injury to human life

• Greenhouse effect• Ozone depletion

• Threaten life in/by the sea

Kilde: Research Council of Norway

• Possible injury to human life• Threaten life in/by the sea

TBT

Toxines

Chemicals

Crudeproducts

Crudeproducts

Bilgewater

SewageGarbage

KFKHalon

KFKHalon

HC VOC Methan

HC VOCMethan

NOXSO2

CO2

51

ACCIDENTS WITH HULL DAMAGEDuring the year one of the vessels was involved in a col-lision with a smaller tanker. There was no personal injury.Although approximately 60 tons of steel had to be re-newed, there was no oil pollution due to the location of thefuel tanks.

Fig.2

ANTIFOULING PAINTThe operational test on “SUMMER BREEZE” with fullapplicaton of a non-toxic antifouling paint with low surfacetension shows a positive development compared with thethree sister vessels which have a self polishing antifoulingpaint containing tributyl tin (TBN). A definite conclusion isexpected only after the next dry docking in just over oneyear. A global ban on TBN is expected around year 2000.

POLLUTION FROM SHIPPING, SOURCES AND CONSEQUENCES

LHC is engaged in vehicle

transportation through a 50%

interest in HUAL AS. The remai-

ning 50% of HUAL, which is the

official company name for the

former Höegh-Ugland Auto

Liners A/S as from 1 October

1997, is owned by Ugland International Holdings plc (UIH).

At the end of 1997 the basic fleet of HUAL consisted of 14PCTCs (Pure Car/Truck Carriers), of which LHC and UIHsupply seven vessels each. In addition to the basic fleet,LHC and UIH supply two jointly owned vessels on time-charter to HUAL for its deep-sea operations, as well as twojointly owned feeder vessels for HUAL’s short-sea service inthe Caribbean. In addition to the basic fleet HUAL chartersin tonnage from the market as required. In 1997 this extratonnage represented approximately 18 vessels on an annual basis.

About 60% of HUAL’s transportation volume is basedon freight contracts with the manufacturers of cars andcommercial vehicles, normally of one to three years’ dura-tion. Shipments of second-hand cars and high and heavyrolling stock account for the remaining part of HUAL’stransportation volume.

The fleet operated satisfactorily in 1997, with minimaltechnical offhire other than planned drydockings.

In May LHC entered into a contract with DaewooHeavy Industries in South Korea to build a 6,000 units purecar/truck carrier for delivery in January 1999. In August a

LH

C

AN

NU

AL

R

EP

OR

T

19

97

52

contract was entered into with Stocznia Gdynia SA inPoland to build a similar vessel for delivery in June 1999.Both contracts are part of the renewal and expansion ofHUAL’s basic fleet.

MARKET CONDITIONSThe global sale of new vehicles increased by about 4% in1997, with quite large variations between the traditionalmarkets. New car manufacturing countries such as SouthKorea continued to strengthen their position and Japanesecars became more competitive due to the general depre-ciation of the yen against other currencies. Japan’s autoexports increased as much as 22% in 1997.

Cargo availability in most of HUAL’s trades was goodand the 1997 transportation volume of 915,000 car equi-valent units represented a new record.

HUAL’s trade from the Far East to Europe continuedto grow significantly in 1997, due to increased volumesboth from Japan and South Korea. The trade from the FarEast to US east coast also registered solid volume growth.After a decline in the previous year, the trade from the FarEast to South America west coast increased again in 1997.

HUAL’s outbound trades from Europe to the MiddleEast, Far East and Africa all had a positive development in1997, with strong and stable cargo availability throughoutthe year. The former trade from Europe to USA has beenreconstructed, and cargo volumes to the Caribbean – basedon freight contracts with French car manufacturers – nowaccount for the major part of this trade.

The outbound trade from USA to the Middle Eastmaintained high shipping volumes in 1997, whereas thetrade from USA to Europe suffered from the strong USDwhich led to reduced volumes.

No car carriers were scrapped in 1997 and ninenewbuildings were added to the fleet. The tight car trans-portation market in 1997 resulted in a significant increasein the contracting activity for new car carriers.

Karl Kristian Hauger

HUAL AS

HU

AL

A

S

52%

RESULTSOperating profit before gain on sales and depreciation wasconsiderably higher compared to 1996. This was due to asubstantially improved earnings in HUAL and a strongerUSD. HUAL quoted in 1997 a new record in transportationvolume. The number of vessels drydocked in 1997 was aboutthe same as the year before.

(NOK million) 1997 1996 1995 1994 1993

Operating profit:

Freight revenues 1,573 1,190 964 782 871

Voyage expenses (700) (561) (494) (414) (429)

Income on T/C-basis 873 629 470 368 442Charterhire expenses (383) (284) (190) (216) (196)

Operating expenses (108) (84) (77) (63) (71)

Operating profit before salesgains and depreciation 380 261 203 89 175Gain on sale of vessels 0 0 0 0 0

Depreciation (54) (98) (88) (56) (62)

Operating profit 327 163 115 33 113

Book value vessels 996 1,034 1,106 474 530

Investements in vessels 16 25 720 - -

Net non-interest bearing debt (38) (27) (11) (18) -

1997

New cars 60%

Second-handcars 24%

High and heavy rolling stock 16%

MARKET OUTLOOKThe globalisation of the motor industry, which has resultedin significant shifts in production and transportation patterns, continues to be a driving force in the internationalvehicle transportation market. New markets, particularly inthe developing world, are becoming increasingly importantto the car carrier operators.The present currency crisis inEast and South East Asia could, however, have a negativeimpact on new vehicle sales in this region, at least in theshort term. Consequences of the currency crisis on the economy in the traditional markets are likely to lead to asmaller growth in global new vehicle sales in 1998 than in1997.

A positive factor is that due to relentless cost-cuttingand a weaker yen, Japanese car manufacturers are nowmuch stronger global contenders than just a year or twoago. Weak domestic demand and an expected fall inexports to neighbouring Asian markets will also contributeto increased exports to other markets with longer trans-portation distances from Japan. These are good news forcar carrier operators. It is expected that car manufacturersin South Korea also will make use of their improved com-petitiveness to boost exports and to seek new markets. Thedemand for car carrier tonnage is therefore expected to continue at a high level in 1998.

At the end of 1997 the car carrier orderbook totalled60 units. This orderbok represents 20% of the existing fleetand the vessels are scheduled for delivery over the comingthree years. The age profile shows that the fleet more than20 years old represents 6% of the existing fleet, whereas thefleet between 15 and 20 years represents 26%.

Consolidated operating profit before sales gains

and deprciation NOK 727 million

COMMODITIES

The final agreement between

Safmarine International and

LHC to create one of the

world’s largest specialized

reefer operators was finalized

in May with effect from 1

January, 1997. Under this

agreement, Safmarine and LHC merged their respective

reefer interests into a newly formed company, Unicool Ltd.

Previous investor Tufton Oceanic Ltd was bought out at the

same time. In this process Unicool acquired 18 vessels and

the operating company Cool Carriers AB. Safmarine retai-

ned its 50% owning interest in the operating company

Universal Reefers, but will explore with South African part-

ners how to best structure future cooperation.

The ownership structure of the new company isSafmarine (50%), LHC (49.8%) and Girestad (0.2%), acompany controlled by the President of Unicool. The com-mercial day-to-day operations of the fleet is carried out byCool Carriers in Stockholm.

Safmarine, founded in 1946, is South Africa’s largestshipowner and is wholly owned by Safren, a publicly quoted company with major investments in, among otherthings, South Africa’s transport industry. The major share-

LH

C

AN

NU

AL

R

EP

OR

T

19

97

54

holder in Safren is the insurance company Old Mutual.Safmarine has traditionally been a liner operator linkingSouth Africa to a number of international markets. Theestablishment of the ‘new’ South Africa in 1994 has pro-vided Safmarine with the opportunity of rapidly increasingits international shipping activities. During recent years,Safmarine has embarked upon an expansion in variousshipping ventures, including bulk and reefer activities.Safmarine has also entered into a major joint venture withBelgium’s CMBT in the liner business, creating the largest operation between Europe and Africa.

In September 1997 Cool Carriers entered into a longterm agreement with the Noboa group for transportationof bananas from Ecuador to US West Coast and Japan.Noboa is one of the largest banana producers in the worldand the contract is among the most comprehensive everentered into in this field. The transportation of bananas willbe combined with Cool Carriers’ present agreement withSunkist for the transportation of citrus fruit from the USAto Japan. Transit facilities are being provided by CoolCarriers terminal for refrigerated cargo in California andthe whole system will employ 10-12 large reefer vessels.Economy of scale, backhaul cargoes, shortened ballast legsand full utilization of the available container deck capacityhave created a cost efficient solution for all parties involved.

At the end of the year Cool Carriers operated a fleet of51 modern reefer vessels through the Leonina pool, ofwhich Cool Carriers was financially responsible for 13chartered-in vessels. The transportation volume in 1997consisted of bananas (52%), other fruits and vegetables(34%), frozen cargoes (6%) and other cargoes (8%).Average freight rates in the Leonina pool increased in 1997by approximately 5% on a T/C equivalent basis from 1996.

At the turn of the year the total fleet controlled by CoolCarriers consisted of approximately 75 vessels, including20 Handysize reefer vessels in Eco Shipping Ltd, a jointlyowned operating company formed in 1996 betweenEastwind Transport Ltd and Cool Carriers. Total capacityin the Cool Carriers fleet is about 32 million cbft and repre-sents about 22% of all operator controlled reefer tonnageabove 250,000 cbft.

Mats Jansson

UNICOOL LTD

MARKET CONDITIONSThe 1997 high season in the reefer market was negativelyinfluenced by several weather-induced factors which resul-ted in reduced crops and shipments, as well as by increaseduse of reefer container boxes in some trades which in-creased the transportation capacity in the market. Reducedimports by EU also had an impact on demand for reefertonnage in the relatively short high season, and averagespot rates were 7-10% lower than in the comparable 1996season.

The low season in the reefer market also turned out tobe somewhat weaker than expected. In addition, the drycargo market was weak, resulting in less alternative cargoes and less positioning cargoes available for reeferoperators. This market situation led to the lay-up of a largenumber of older, conventional reefer vessels. Cool Carrierswas only partly affected by the general market due to a relatively high contract coverage. Due to the tight car trans-portation market with a shortage of car carriers, reefer vessels were increasingly used for the transportaion of carson traditional ballast legs, and Cool Carriers has in thisconnection developed a good relationship with HUAL AS.

The activities in the reefer market picked up in the finalquarter of the year primarily due to increased exports to theBaltic and the Black Sea, resulting in an increase in spotrates.

It is estimated that the demand for reefer tonnageincreased by about 2% in 1997.

Scrapping of old, inefficient reefer and freezer vessels in1997 did not reach the same volume as the year before, butwas sufficient to keep the growth in the conventional reeferfleet at a low level. The reefer container box capacity, how-ever, increased strongly due to the large addition to the purecontainership fleet, which resulted in increased competitionin several of the traditional reefer trades.

Rates for 12 months timecharters for large, modernand pallet friendly vessels signed at the end of 1997 were onaverage 3% lower than the year before. There are, however,large variations in rate levels, with a decline of up to 10%for older units, whereas sophisticated vessels tailor-madefor special trades achieved higher rates than a year ago.

MARKET OUTLOOKThe outlook for the reefer market in 1998 is characterizedby a large degree of uncertainty, particularly regarding theeffects of the El Niño weather phenomenon on the variouscrops. Though early rains helped the growth of Chileanfruit, ending four years of drought, the downpours havegone on to become a problem in some areas, particularly inEcuador, the world’s largest exporter of bananas. After arecord export in 1997, it is estimated that volumes couldfall by as much as 20% in 1998. However, the weather hasbeen favourable in other exporting areas such as NewZealand and South Africa.

The strong USD is expected to continue to have a nega-tive impact on sales to the European market, and shipmentsof reefer commodities to Asia will be influenced by the cur-rent crisis in the region. Demand for reefer transportation istherefore not expected to increase in 1998.

The orderbook for conventional reefer vessels current-ly represents about 8% of the existing fleet. Close to half ofthe orderbook is scheduled for delivery in 1998. The ageprofile of the existing fleet suggests continued scrapping, anthe net addition to the fleet is expected to be modest.However, expansion in the reefer container box capacitywill be large also in 1998, and it is likely that operators ofpure container vessels will seek to strengthen their positionin this market in competition with the tradional reefer operators. The addition to the pure containership fleet willbe very modest in 1999.

The long term outlook for reefer transportation is stillpositive. Western Europe, North America and Japan willremain the main markets for bananas, apples, pears and citrus fruits, which constitute the major part of cargo trans-ported in reefer vessels. The markets expected to experiencethe largest growth, however, are Eastern Europe, the formerSoviet Union, China and South East Asia – as soon as theeconomic crisis in this region is over.

UN

IC

OO

L

LT

D

22%

Consolidated operating profit before sales gains

and deprciation NOK 727 million

A common feature for several countries in the newgrowth areas is an ongoing urbanization which reduceslocal output of fresh produce and opens the doors for in-creased imports. At the same time these countries are in theprocesss of reducing import duties on a series of commodi-ties, including fruit and vegetables. The long term forecastsfor seaborne trade in reefer commodities are indicating anaverage annual growth of 3-3.5% over the coming years.

Europe’s quota system for bananas is under sustainedattack from the USA, who, together with Ecuador,Guatemala, Honduras and Mexico, are contesting thesystem which was introduced by the EU in July 1993. Thecase is still being heard by the WTO (World TradeOrganisation) in Geneva.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

56

UNICOOL LTD

Leonina memb.28%

Leonina charters. 22%

Time charters17%

1997

Owned 33%

Major banana tradesworldwide

THE FLEET

UN

IC

OO

L

LT

D

22%

Citrus 21%

Deciduous 13%

Other 10%

Meat 2%

Seafood 2%

Bananas 52%

COMMODITIES

Major banana tradesworldwide

RESULTSDue to the restructuring of the reefer activity with the esta-blishment of Unicool Ltd (LHC 49.8%) the result for 1997 isnot comparable with 1996. The earnings for the vessels intotal was, however, somewhat higher than the year before.

(NOK million) 1997 1996 1995 1994

Operating profit:

Freight revenues 752 1,074 744 711

Voyage expenses (210) (355) (237) (246)

Income on T/C-basis 542 719 507 465Charterhire expenses (277) (487) (394) (484)

Operating expenses (103) (125) (39) (3)

Operating profit before salesgains and depreciation 161 107 74 (22)Gain on sale of vessels 20 0 0 0

Depreciation (59) (103) (68) (39)

Operating profit 122 4 6 (61)

Book value vessels 976 1,291 672 174

Investments in vessels - 722 566 213

Net non-interest bearing debt 27 54 87 44

Consolidated operating profit before sales gains

and deprciation NOK 727 million

Bona Shipholding Ltd (Bona)

and its subsidiaries Bona

Shipping AS and Bona Shipping

(U.S.) Inc. own and operate

medium-sized tankers and

combination carriers (OBOs)

primarily transporting oil and

oil products. The companies manage on a commerical basis

a total of 31 vessels with a combined tonnage of 3.1 million

dwt. Bona is quoted on the Oslo Stock Exhange with a mar-

ket capitalisation of USD 291 million or NOK 2.13 billion as per

the end of 1997. LHC owns 33.6% of the shares in Bona.

1997 was the best year in Bona’s history. Following con-solidation and technical upgrading of purchased vessels in1996, Bona was well positioned for taking advantage of thesubstantially improved tanker market in 1997. The fleetwas concentrated in the Atlantic, where contract patternsand trading patterns were further developed. Some accidents resulted in offhire days during the first quarter ofthe year in addition to the planned drydocking of four vessels, resulting in a total of 250 offhire days.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

58

BONA SHIPHOLDING LTD

Ragnar Belck-Olsen

TANKERSThe Aframax tankers were concentrated in the Atlantic,with special focus in the Caribbean region. The market wasparticularly strong in the Caribbean in the second quarter,and the customer basis was expanded. At the same timeBona secured a contract of affreightment from NynäsPetroleum for transportation of crude oil from Venezuela toEurope, contributing to the trade pattern between theAtlantic market segments.

While three vessels continued on long term time-charters in the strategic alliance between Amoco and Bona,three other vessels were redelivered from timechartersduring 1997. One Aframax tanker with double hull waschartered in for 12 months.

The freight market was substantially better than in1996, particularly in the first half of the year, improvingBona’s T/C income per day compared to previous years.

The Suezmax tanker BONA LIV was sold and theother two Suezmax vessels continued on timecharters through the year. INAGO was redelivered from Petrobrasand was fixed for 12 months timecharter to Statoil, whoalso extended ERATI’s timecharter by another 12 months.

The ULCC GUARDIAN continued its timecharter as astorage vessel off Qatar.

OBO VESSELSThe combination carriers were mainly employed in theAtlantic with emphasis on clean condensate and productcargoes from North Africa to Europe and USA and fromEurope to the USA. The vessels returned from the USA withvarious dry bulk commodities such as coal and petcoke.The condensate contracts continue through 1998.

The combination carrier BONA FALCON was sold,but continued in the Bona OBO pool.

The dry bulk market was weak during most of theyear. The condensate market was particularly strong in thefirst half and the T/C income per day was higher than in1996.

MARKET CONDITIONSThe fundamentals in the tanker market developed in theright direction in 1997, a trend which in this cycle startedin 1994. World oil demand increased by 2.9% and oilimports by the traditional import areas USA, Japan andEurope increased by 4.6%, 2% and 4.8%, respectively.Imports by new importing countries such as China in-creased by more than 25%. Iraq exported oil during mostof the year and the oil companies rebuilt their oil inven-tories. In addition to a continued increase in short haul oilexports, there was also an increase in long haul oil ship-ments, which in total resulted in an increase in demand fortanker tonnage of 4% in 1997.

There were few newbuildings during the year. Scrap-ping as well as conversion of existing tankers to floatingproduction and storage units (FPSOs) resulted thus in onlya marginal increase in the tanker fleet. In the VLCC seg-ment there was a decline. Improved market conditions forall Bona’s size segments took place in 1997, resulting in anincrease in both rates and values compared with the pre-vious year.

The improvement in freight rates in the dry bulk market during the first ten months of 1997 was the resultof strong growth in global industrial activity. Towards theend of the year the crisis in Asia started to have an impacton the dry bulk market. The Panmax market was also in-fluenced by a lower than anticipated growth in seabornetrade in steam coal, a decline in grain shipments to the FarEast and a large number of newbuildings delivered from theyards.

MARKET OUTLOOKThe fundamentals in the tanker market is not expected toimprove in 1998. The growth in oil demand in some of theAsian countries is expected to be considerably lower andripple effects of the currency crisis in these areas may leadto a growth in world oil demand closer to 2%. Low oil prices are likely to dampen somewhat the fall in oildemand, and import requirements in countries such asChina and India are expected to continue to grow substan-tially in 1998. However, the growth in USA’s oil imports islikely to fall off somewhat due to a levelling out of domes-tic oil production and lower economic activity than in1997. Long haul oil from the Middle East to the US marketis expected to fall in 1998, whereas short haul oil tradesfrom the North Sea and South America continue to grow.

The medium-size tanker segment will continue tobenefit from increasing short haul trades, as the increase innon-OPEC oil production is expected to be large also in1998. Due to lower import requirements in the Far East asa total, however, only a modest increase in long haul ship-ments can be expected. This means that some VLCC tonnage probably will compete with medium-sized tankersin the areas where this is possible. The potential for rateincreases could therefore be limited for medium-sized tankers engaged in short haul trades. Iraq’s oil exports will,however, benefit both large and medium-sized tankers, asboth the pipeline through Turkey to the Mediterranean andthe oil terminal in the Arabian Gulf will have to be used inorder to export the volumes in question, particularly in thefirst half of the year. It is estimated that demand for tankertonnage will increase by less than 2% in 1998.

At the same time more newbuildings are scheduled fordelivery than in 1997. Based on an increase in scrappingcompared to 1997, the tanker fleet is expected to increaseby about 1.5%. However, there are large variations be-tween size groups, and most newbuildings in 1998 will beadded to the Aframax- and Suezmax segments. There are,however, three factors which could have an impact on thesupply of tankers: 1) The age profile of the existing tankerfleet suggests that drydockings in periods will keep tonnageoff the market longer than usual. 2) The implementation ofthe ISM Code in July 1998 could remove some tonnagefrom the major markets. 3) Conversion of exsting tankersto FPSOs is expected to continue. It is possible that a com-bination of these factors could reduce the supply of availab-le tanker tonnage, so that the high capacity utilization ofthe fleet will continue in 1998, particularly in the first halfof the year, resulting in a continued volatile spot market.

It is expected that the dry bulk market will be in-fluenced by the crisis in Asia for most of 1998, with very little growth in seaborne trade in raw materials such as ironore, metallurgical coal and steam coal. As regards the grainmarket, it is expected that good crops in the USA will leadto increased exports this grain year. It is also possible thateffects of El Niño will disturb grain crops in other parts ofthe world, leading to longer transportation distances. Thiswill be favourable for demand for Panmax tonnage.However, additions of newbuildings in this segment will belarge in 1998.

BO

NA

S

HI

PH

OL

DI

NG

L

TD

LH

C

AN

NU

AL

R

EP

OR

T

19

97

60

ADDRESSES

SHANGHAIMr. Brook AuLeif Höegh & Co. ASAShanghai Office14 D'East Ocean Centre588 Yan An Road EastShanghai200001 P.R. ChinaTelephone: (86 21) 6352 8638Telefax: (86 21) 6352 8639

SINGAPOREJørgensen, Per DyrnesHöegh Representativec/o Harpers Shipping Pte. Ltd70 Anson Road# 17-00 Apex TowerSingapore 079905State of SingaporePost: Robinson Road

P.O. Box 2135Singapore 904135

Telephone: (65) 221 1388Telefax: (65) 224 0376Telex: RS 24685 harpgil

VANCOUVERPCL – Pacific Commerce Line Inc.Suite 1238 Granville Square200 Granville StreetVancouver, BC V6C 1S4CanadaTelephone: (1 604) 688 9919Telefax: (1 604) 681 4022Telex: 04-51536

LEIF HÖEGH & CO. ASAWergelandsveien 7P.o. box 2596 – Solli0203 OsloTelephone: (47) 2286 9700Telefax: (47) 2220 1408

FOREIGN OFFICES:

JEDDAHMathiesen, Ingvar M.Höegh Representativec/o Arabian Establishment for Trade and ShippingAl Jawhara Bldg., 7th FloorMedina RoadP.O. Box 832Jeddah 21421Saudi ArabiaTelephone: (966 2) 644 0906 (direct)

" (966 2) 643 4254 (direct)Telefax: (966 2) 644 0894Telex: 604712 aethl sj

LONDONLeif Höegh (U.K.) Ltd60 Sloan AvenueLondon SW3 3DDEnglandTelephone: (44 171) 594 4010Telefax: (44 171) 594 4014

MUMBAYCaptain Dady J. ModyMr. Nithin Menonc/o Patvolk – Div. of Forbes Gogak LtdShipping Department19, J.N. Heredia MargBallard EstateMumbay 400038IndiaTelephone: (91 22) 261 5721

(direct, Mody)" (91 22) 261 7066

(direct, Menon)Telefax: (9122) 265 7204Telex: 1185431 gpv in

" 1186574 gpv in

NEW YORKHöegh Lines Agencies Inc.95, Christopher Columbus Drive, 12th FloorJersey City, NJ 07302U.S.A.Telephone: (1 201) 433 4600Telefax: (1 201) 433 5195Telex: 510-601-2439 hoegh nj uq

HÖEGH FLEET SERVICES ASWergelandsveien 7P.o. box 2596 – Solli0203 OsloTelephone: (47) 2286 9700Telefax: (47) 2220 1408

FOREIGN OFFICES:

MANILAHFS Philippines Inc.Pilgrim Bldg.111 Aguirre StreetLegaspi VillageMakati City 1200PhilippinesTelephone: (63 2) 812 8621

" (63 2) 812 5087Telefax: (63 2) 840 0691

LH

C

AN

NU

AL

R

EP

OR

T

19

97

61

HUAL ASDronningensgate 40P.o. box 777 – Sentrum0106 OsloTelephone: (47) 2241 7100Telefax: (47) 2241 6382Telex: 77480 hual n

FOREIGN OFFICES:

AMSTERDAMHUAL Benelux B.V.Corsicaweg 101044 AB AmsterdamThe NetherlandsTelephone: (31 20) 611 6764Telefax: (31 20) 611 3539

BALTIMOREHUAL North America, Inc.Baltimore Branch OfficePoint Breeze Maritime Center II2310 Broening Highway, Suite 165Baltimore, MD 21224U.S.A.Telephone: (1 410) 631 5708Telefax: (1 410) 631 5718

BREMENHUAL Germany GmbHPr¨sident Kennedy Platz 138203 BremenGermanyTelephone: (49 421) 320 309Telefax: (49 421) 327 947Telex: 244830 pwlb d

DAMMAMHUAL Middle EastDammam Branch OfficeKanoo TowersP.O. Box 37Dammam 31411

SAUDI ARABIATelephone: (966 3) 834 8645

" (966 3) 834 8550" (966 3) 834 8050

Telefax: (966 3) 834 8731Telex: 802726 khoegh sj

DUBAIHUAL Middle EastDubai Branch Officec/o The Kanoo GroupKhalid Ibn Al Waleed StreetKanoo BuildingP.O. Box 290DubaiUnited Arab EmiratesTelephone: (971 4) 522 030Telefax: (971 4) 520 805Telex: 45769 auto em

JACKSONVILLEHUAL North America, Inc.Jacksonville Branch Office9620 Dave Rawls BoulevardBlount Island Marine TerminalJacksonville, FL 32226U.S.A.Telephone: (1 904) 696 7750Telefax: (1 904) 696 7760Telex: 6737286 autojx

JEDDAHHUAL Middle EastJeddah Branch Officec/o Arabian Establishment for Trade &Shipping7th Floor, Al-Jowhara BuildingP.O. Box 832Jeddah 21421Saudi ArabiaTelephone: (966 2) 643 4254

" (966 2) 644 0906" (966 2) 642 2808 ext. 701/706

Telefax: (966 2) 644 0894Telex: 604712 aethl sj

LE HAVREHUAL France S.A.R.L.Le Havre Branch Office7, rue Pierre Brossolette76600 LE HAVREFranceTelephone: (33 2) 3274 7590Telefax: (33 2) 3274 7591Telex: 190042

LONDONHUAL U.K. LtdBlackburn House22-26 Eastern RoadRombord, Essex RM1 3PJEnglandTelephone: (44 1708) 730 577Telefax: (44 1708) 723 275Telex: 8954810 hualuk g

NEW YORKHUAL North America, Inc.500 N. BroadwayThe Jericho AtriumSuite 233Jericho, NY 11753U.S.A.Telephone: (1 516) 935 1600Telefax: (1 516) 935 2604Telex: 238920 auto ur/

" 824274 auto uf

PARISHUAL France S.A.R.L.35, rue des Mathurins75008 ParisFranceTelephone: (33 1) 5330 8585Telefax: (33 1) 5330 8586Telex: 285130 autopar

RIYADHHUAL Middle EastRiyadh Branch Officec/o Yusuf Bin Ahmed KanooOld Airport RoadP.O. Box 753Riyadh 11421Saudi ArabiaTelephone: (966 1) 478 9578

" (966 1) 477 2228 ext. 227Telefax: (966 1) 478 6869 (Kanoo)

" (966 1) 477 2228 ext. 227

YOKOHAMAHUAL Japan K.K.Minoda-Kannai Bldg. 3F39-2, Minaminakadori 4-chomeNaka ku YOKOHAMA 231JapanTelephone: (81 45) 662 3332Telefax: (81 45) 662 3335Telex: 3823268 hual j

Aframax vessel«Afra» = Average Freight Rate AssessmentTanker about 80-105,000 dwt.

BaleCubic volume available in the holds for stowage of cargo.

Bareboat CharterChartering a vessel with all crew and operating expensesfor charterer’s account.

Capesize vesselDry bulk vessel over 140,000 dwt.

Charter a vesselTo hire a vessel (in or out).

Charterparty (C/P)An agreement about chartering a vessel for a single voyage(voyage charterparty) or for a longer period (timecharterparty).

DWT (Dead Weight Ton)The vessel’s cargo capacity measured in tons of cargo andsupplies.

Dry bulk cargoMainly grain, coal and ore.

Freight income on T/C basisFreight income less voyage related costs (excluding operat-ing expenses).

General cargoLiner cargo not being carried in containers.

Handymax vesselBulk vessel of 35-50,000 dwt.

Handysize vesselVessel of 10-35,000 dwt.

LNG-vesselA vessel carrying LNG (Liquefied Natural Gas) cooled tominus 160 degrees Celsius.

LPG-vesselA vessel carrying LPG (Liquefied Petroleum Gas) cooled tominus 45 degrees Celsius.

Multipurpose vesselGeneral cargo vessel also equipped for carryingcontainers.

OBO-vesselA vessel which can carry oil and oil products, or dry bulkcommodities such as grain, coal and ore (oil-bulk-ore).

Open Hatch vesselA vessel with hatches without overhang, used for carryingcontainers and bulk commodities, e.g. lumber and forestproducts (pulp and paper).

Operating expensesInclude crewing costs and all expenses related to the technical management of the vessels including insurance.

Panmax vesselMaximum size of a vessel for the passage of the PanamaCanal (about 80,000 dwt.).

PoolA cooperation between owners who place vessels in a joint-ly controlled operational unit where freight income ontimecharter basis is divided between the partners accordingto a predetermined key.

RoRo vesselA vessel carrying rolling stock (Roll on/Roll off), such as car carriers, liner vessels or a combination.

Spot rateDescribes rate for single voyages agreed on the basis oftoday’s market situation.

Suezmax vesselA vessel constructed for maximum utilization of cargo car-rying capacity through the Suez Canal (approx. 130-140,000 dwt., and approx. 1 million barrels).

TEUTwenty feet Equivalent Unit, i.e. a 20 feet long container. Ameasurement for the vessel’s container capacity.

ULCC (Ultra Large Crude Carrier)Tanker over 300,000 dwt.

Voyage related costsMainly bunkers, port dues, canal dues, loading and discharging costs.

VLCC (Very Large Crude Carrier)Tanker between 200,000 and 300,000 dwt.

LH

C

AN

NU

AL

R

EP

OR

T

19

97

62

WORDS AND EXPRESSIONS

Vessel LHC share % Built Dwt

NORMAN LADY 50 1973 50 922HÖEGH GANDRIA 39 1977 71 630

SG ENTERPRISE 100 1997 211 485 mtSG PROSPERITY 100 1997 211 202 mt

RICKMERS TIANJIN 80 1979 31 507HÖEGH CLIPPER 80 1979 31 555HÖEGH DENE 100 1984 41 600HÖEGH DRAKE 100 1984 41 600HÖEGH DYKE 100 1984 41 600HÖEGH DUKE 100 1984 41 571HÖEGH MIRANDA 100 1979 43 571HÖEGH MINERVA 100 1979 44 016SAGA CHALLENGER 100 1996 49 755HÖEGH MERCHANT 100 1977 44 895HÖEGH MERIT 100 1977 44 926HÖEGH MUSKETEER 100 1977 44 892HÖEGH MARLIN 100 1977 45 063HÖEGH MASCOT 100 1977 45 063HÖEGH MISTRAL 100 1986 30 402HÖEGH MORUS 100 1997 49 755

HUAL TRACER 100 1981 12 969HUAL TRAPPER 100 1981 12 961HUAL TRAVELLER 90 1983 15 370HUAL TROTTER 90 1983 15 370HUAL TRIBUTE 100 1988 21 385HUAL TRIDENT 100 1995 20 600HUAL TROOPER 100 1995 20 600HUAL TRINITA 50 1981 17 938HUAL TRANSITA 50 1981 17 650CARIB SEA 50 1976 2 165CARIB SUN 50 1977 2 165HUAL NB 4418 (Newbuilding) 100 1999 20 400HUAL NB 8168 (Newbuilding) 100 1999 21 000

SPRING BRIDE 49.8 1984 10 126SPRING DREAM 49.8 1984 9 891SUMMER BREEZE 49.8 1985 13 613SUMMER FLOWER 49.8 1984 13 556SUMMER MEADOW 49.8 1985 13 584SUMMER WIND 49.8 1985 13 636CRYSTAL PRINCE 49.8 1991 7 721CRYSTAL PRIDE 49.8 1992 7 721CRYSTAL PRIMADONNA 49.8 1992 7 721CRYSTAL PRIVILEGE 49.8 1992 7 721IVORY DAWN 49.8 1991 10 412ARCTIC UNIVERSAL 49.8 1986 10 298BALTIC UNIVERSAL 49.8 1986 10 298LINCOLN UNIVERSAL 49.8 1987 10 298TASMAN UNIVERSAL 49.8 1988 10 298CARIBBEAN UNIVERSAL 49.8 1993 10 614CORAL UNIVERSAL 49.8 1993 10 614ERIKSON CRYSTAL 29.0 1989 6 120All vessels owned through Unicool Ltd

Vessel LHC share % Built Dwt

BONA FAIR 33.6 1981 75 470BONA FAVOUR 33.6 1981 82 462BONA FOAM 33.6 1981 78 532BONA FORTUNA 22.5 1982 78 532BONA FORUM 33.6 1983 78 394BONA FOUNTAIN 33.6 1982 78 532BONA FREIGHTER 17.5 1982 75 395BONA FULMAR 33.6 1983 78 585BONA RAINBOW 33.6 1980 97 115BONA RANGER 33.6 1986 99 257BONA RAY 33.6 1987 99 335BONA RIDER 33.6 1985 95 370BONA ROBIN 33.6 1985 95 420BONA ROVER 33.6 1985 95 400BONA SAILOR 33.6 1994 106 236BONA SHIMMER 33.6 1989 84 841BONA SKIPPER 33.6 1988 84 841BONA SPARROW 33.6 1985 94 706BONA SPINNER 33.6 1988 84 841BONA SPRAY 33.6 1983 106 266BONA SPRING 33.6 1986 94 752Newbuilding No. 234 33.6 1999 113 000Newbuilding No. 235 33.6 1999 113 000Newbuilding No. 236 33.6 1999 113 000GUARDIAN 33.6 1977 357 649BORNES 16.8 1990 88 950ERATI 16.8 1992 159 719INAGO 16.8 1993 159 878All vessels owned through Bona Shipholding Ltd

THE FLEET Owned/leased by Leif Höegh & Co. Consolidated per 31 December 1997

GAS

DRY BULK

HÖEGH L INES

HUAL AS

UNICOOL LTD

BONA

SHIPHOLDING

LTD

BONA SHIPHOLDING LTD

TOTAL FLEET OPERATED BY LEIF HÖEGH & CO. CONSOLIDATED PER 31 DECEMBER 1997

Owned/ Disposed Chartered in Chartered in Cooperationleased for others >12 months Total <12 months Total with others Total

LNG/LPG 0.9 1.1 2.0 2.0 2.0

HUAL 8.8 0.2 3.5 12.5 4.0 16.5 16.5 33.0

Multipurpose 6.0 0.0 6.0 6.0 6.0

Open hatch 9.6 0.4 10.0 10.0 10.0

Unicool 9.0 7.5 7.0 23.5 3.5 27.0 39.0 66.0

Tørrbulk 2.0 1.0 3.0 3.0 3.0

Subtotal 36.3 9.2 11.5 57.0 7.5 64.5 55.5 120.0

Tank (Bona) 7.5 2.5 0.3 10.4 10.4 20.6 31.0

TOTAL 43.8 11.8 11.8 67.4 7.5 74.9 76.1 151.0

LEIF HÖEGH & CO. ASAWergelandsveien 7

PO.Box 2596 - SolliN-0203 OSLO Norway

Telephone: +47 22 86 97 00Telex: 7935 HSHIP

Telefax: +47 22 20 14 08E-mail: lhc@hoegh.no

Internet: www.hoegh.noOrganisation no: 921482957

@Hugin 1998. All rights reserved.

97Table of Contents

Overview

Summary 1997

Key figures

Report of the Board of Directors

Income Statement

Balance Sheet

Cash Flow Analysis

Notes

Shareholders Policy

Leif Höegh & Co LEIF HÖEGH & CO. ASA

A N N UA L R E P O R T 1 9 9 7

Main menu