Group Review 2011
OUR MISSION
We secure, for the benefit of the community, high technical standards of design, manufacture, construction, maintenance, operation and performance for the purpose of enhancing the safety of life and property at sea, on land and in the air‌ because life matters. We advance public education in transportation and other engineering and technological disciplines through research, training and related activities.
INTRODUCTION
IN THE CURRENT CHALLENGING WORLD – IN ECONOMIC TURMOIL AND WITH A SUCCESSION OF CATASTROPHIC INCIDENTS AFFECTING THE CRITICAL INFRASTRUCTURE WE ALL RELY ON – PEOPLE AND ORGANISATIONS NEED CERTAINTY. With 250 years of experience and its public benefit mandate, Lloyd’s Register can help provide that certainty. Companies trust us to help them improve the safety, quality and performance of their businesses. We survey ships, oil platforms and other critical infrastructure to make sure they meet rules and standards. We help to protect life and property to make the world a safer place.
Contents 02 Group overview 04 Chairman’s review 06 A year in snapshot 08 Chief Executive’s review 10 The Lloyd’s Register difference 18 Public benefit 22 Our employees 24 Marine
32 Transportation 38 Energy 46 Management Systems 52 Around the world 56 Chief Financial Officer’s report 58 Board of Trustees and Executive Leadership Team 60 Glossary Lloyd’s Register Group Review 2011 1
GROUP OVERVIEW
G ROUP OVERVIEW We provide independent assurance and expert advice to companies operating high-risk, capital-intensive assets in the energy and transportation sectors. We enhance the safety of life, property and the environment by helping our clients to ensure the quality construction and operation of critical infrastructure.
MARINE
TRANSPORTATION
We are a leading provider of marine classification services around the world, helping to ensure that internationally recognised quality standards are maintained throughout the life of a vessel from construction to decommissioning. But we provide much more than traditional classification surveying services. There is an increasing need for the provision of sophisticated risk management and support to shipowners and ship managers. Human element issues are of growing importance in our complex world and we are helping the industry make the most of its people.
We provide a range of expert services to improve the safety, performance and asset management of rail and metro systems across the world. Our combination of global expertise and local knowledge offers a powerful advantage in a sector where engineering and operating practices vary considerably from country to country. In addition to our renowned assurance and certification services we provide specialist advice across rolling stock, signalling, safety engineering, human factors, energy efficiency, software testing, civil engineering and operational management.
Capabilities • Ship classification • Environmental services • Fuel and engine performance • Human factors • Public and bespoke training • Ship emergency response • Ship inspection and assessment • Technical investigations • Marine research and innovation
Capabilities • Independent assurance • Expert advice • Asset condition monitoring • Bespoke training • Human factors
Performance
Performance
Revenue increase of 2% (2010: £370.7m)
Revenue increase of 20% on a like-for-like basis post-restructuring (2010: £46.2m)
£377.3m
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£45.1m
GROUP STRATEGY Our strategy is simple: to add value to society and achieve sustainable growth through independent assurance and expert advice for clients operating the critical infrastructure upon which society relies – clients who value independent, global, technical insight. We are guided by clear strategic objectives to achieve our goals under key themes: Drive external focus – to make sure we consistently deliver the best possible value to our clients.
Right people, right place, right time – a focus on having good people and strong leaders who all put safety first and enable us to deliver an excellent service. Adding value to society – this is the key overarching theme that unites our whole strategy and fulfils our mission to make the world a safer place. Within these simple and clear parameters we have almost unbounded opportunity.
Step change in efficiency and effectiveness – an emphasis on service quality.
ENERGY
MANAGEMENT SYSTEMS
We believe it is our responsibility to ensure that every one of our clients has the technical support and guidance they need to build and operate energy facilities safely and efficiently. Our asset knowledge, technical expertise and ability to generate value quickly, helps clients’ asset management and safety assurance across the energy supply chain – from oil fields and pipelines to refineries, power stations and manufacturing – as they tackle some of the largest, most complex energy challenges in the commercial world. We provide this expertise through a range of design appraisal, inspection and consultancy services particularly to those responsible for assets which could pose a risk to people or the environment.
Our Management Systems business, LRQA, is a leading independent provider of business assurance services including certification, validation, verification and training. LRQA Business Assurance helps our clients manage their systems and risks to improve and protect the current and future performance of their organisations. We are accredited by over 45 accreditation bodies and deliver our services to clients in more than 120 countries.
Capabilities • Regulatory compliance • Design appraisal • Inspection • Asset integrity management • Materials and equipment failure investigation • Global vendor inspection and expediting • Training • Human factors
Capabilities • Quality • Environment • Climate change • Food safety • Health and safety • Supply chain security
Performance
Performance
Revenue increase of 15% (2010: £228.7m)
Revenue increase of 6% (2010: £160.4m)
£262.3m
£170.6m Lloyd’s Register Group Review 2011 3
CHAIRMAN’S REVIEW
C HAIRMAN’S REVIEW In the past I have always been very impressed with the Group’s services and engagement with clients. My experience since joining has reinforced that belief.
It is a great privilege for me to welcome you to this Group Review in my first year at the helm. As of January 1, 2011, I had the honour of taking over from David Moorhouse, CBE as Chairman of this great organisation.
In my prior function as Partner in the AP Moller Group and CEO of Maersk Oil, I have had the privilege to work closely with various parts of our Group, and through the years have always been very impressed with the quality and standing of our services and engagement with clients. My experience since joining has reinforced that belief. Over the last few years, the Lloyd’s Register Group management team, with Richard Sadler as CEO and under the guidance of David Moorhouse, has continued to grow the Group both in terms of size and business diversity. We now have a very good platform for mapping out our aspirations to take the next exciting steps in our development. Such opportunities must always be anchored in our values and our heritage in such a way that we set strong and ambitious goals, but always remember who we are and the values that have created us.
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A very special priority of mine is health and safety – we must set our goals to ‘zero incidents’ and avoid any harm to employees, clients and suppliers. Without being best-in-class in health and safety we have no ‘licence to operate’. This year our performance has improved again and I am pleased to see the continuing commitment and investment in keeping people safe. Group financial performance this year has been reassuring; despite continuing tough global economic conditions, Group income at £855 million shows encouraging growth on 2009/10 (£806 million). The top-line performance is particularly pleasing given the continuing volatility in the world economy and is evidence of the advantages of an increasing portfolio of services offered by Lloyd’s Register. The anticipated weakness of our Marine revenues in the year did not materialise. Furthermore, the reported income for the Group has been enhanced by the further weakening of sterling during the year and the full year results of the Scandpower Group (acquired in December 2009).
While the underlying income increased by £40 million, or 5% on a constant exchange rate basis, the margin performance this year was impacted by the relative weakness of sterling against a basket of world currencies including the euro and Japanese yen and a softening of the Energy business margins. The Group operating surplus, before charitable donations, was £50.4 million (2010: £127.8 million), giving an operating margin of 5.9% (2010: 15.9%). Included in the prior year’s operating surplus was a one-off £50.5 million gain arising from changes to the UK pension scheme. After charitable donations of £10.4 million (2010: £10.4 million), the operating surplus was £40.0 million (2010: £117.4 million). The Group operating surplus after tax was £39.7 million (2010: £114.4 million). Further details of our financial performance are contained in the Chief Financial Officer’s overview on pages 56–57. Income in our Marine business was up 2% up on the previous year (1% on a constant exchange rate basis). Although small, this increase is pleasing as the Group had anticipated a continuation of the slowdown in activity seen in 2009/10. Our Energy business generated a 15% increase in income on the previous year (14% on a constant exchange rate basis), helped by the full year effect of the Scandpower acquisition. Our Transportation business saw income 3% down on the previous year (2% on a constant exchange rate basis), following a restructuring of the business, which has shown significant progress on a like-for-like basis.
In addition, our charitable giving this year was £10.4 million, principally to The Lloyd’s Register Educational Trust (The LRET), a charity which is independent of Lloyd’s Register. The LRET uses these funds to promote education, professional development and research in the areas of transportation, science, engineering and technology for the benefit of all. I have enjoyed working with my fellow Trustees and I would like to thank them all for their valuable contribution this year. Søren Skou, who had served on the Board since July 2008, stepped down from the Board on January 31, 2011, and I thank him for his support. We welcomed Michael Lykiardopulo to the Board on July 1, 2011, further enhancing the industry expertise amongst the Trustees. During the year I have had the opportunity to meet clients and stakeholders around the world and I would like to thank them all for the trust they place in Lloyd’s Register. I have also been greatly impressed by the work and support of our General Committee, technical committees, and national and regional committees in providing us with the insight that is so vital to maintaining Lloyd’s Register at the forefront of the industries we serve. Finally, I would like to thank the management and employees of the Lloyd’s Register Group for their loyal and committed contribution.
Thomas Thune Andersen Chairman
Income in our Management Systems business generated income of £170.6 million (2010: £160.4 million), a 6% increase on prior year (5% on a constant exchange rate basis). The financial markets continue to be volatile and economic growth in the major economies appears to be stalling. While not immune to these external factors, the Group’s business has demonstrated its resilience through tough times. The organisation continues to have a strong focus on its charitable objectives of protecting life and property and the advancement of education and research in the fields of transportation and engineering. One of the most significant ways that Lloyd’s Register benefits society is through its classification Rules and Regulations (the Rules) which help protect life, property and the environment. Our intellectual capital is accessible to academics, students, regulators and professionals through committees, conference papers, publications and research papers.
Lloyd’s Register Group Review 2011 5
A YEAR IN SNAPSHOT
A YEAR IN SNAPSHOT
1 3 JULY 2010
SEPTEMBER 2010
Lloyd’s Register launches Insight magazine for clients and stakeholders. Its aim is to convey insight into topical issues, with articles from our own experts and interviews with leading industry figures. The first issue includes features on sustainability and human factors.
We produce a safety template for tanker operators involved in ship-to-ship oil transfers. The template, a plan and checklist, helps operators comply with MARPOL changes before they become law in January 2011.
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September: Lloyd’s Register won the ‘Best Classification Society’ category at the Lloyd’s List Global Awards 2010. Surveyor, Apostolos Giannoulis received the award from the category sponsor, ASRY Group Chairman Daij bin Salman bin Daij Al-Khalifa.
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AUGUST 2010
OCTOBER 2010
LRQA becomes one of the first firms accredited by the UK Accreditation Service to independently verify emissions-related data from airlines, in accordance with the EU Emissions Trading Scheme. Airlines must measure the carbon emissions they produce when flying to and from European airports.
Our new joint venture company, Lloyd’s Register Apave Ltd wins a major third-party inspection contract from EDF Energy to support construction of nuclear power plants. The deal represents one of the largest single contracts in the 250-year history of the Lloyd’s Register Group.
NOVEMBER 2010 Shipping and power experts join forces to explore the potential for nuclear propulsion of commercial tankers. We join a new research consortium which will investigate the use of small modular reactors that could deliver safer, cleaner and commercially viable forms of propulsion for the global tanker fleet.
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DECEMBER 2010 Lloyd’s Register and the University of Southampton agree to collaborate on the £116 million first phase of the university’s state-of-the-art technology and training campus. Richard Sadler, Chief Executive of Lloyd’s Register says: “The agreement combines the best of academia and business to simultaneously support industry and society through research into cleaner fuels, safer work environments and more dependable infrastructure.” December: We issue the industry’s first certificate of compliance with the new Maritime Labour Convention to a Marshall Islands-flagged tanker Kraslava, operated by the Riga-based LSC Shipmanagement SIA.
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MAY 2011
Lloyd’s Register wins a contract to support Maersk FPSO’s global commitment to safe, clean and efficient offshore operations. The long-term agreement includes integrity management, verification and classification, combining the expertise of our Energy and Marine teams.
JANUARY 2011 We win a £3 million contract for the independent verification and validation of the new Taiwan International Airport transit link – clear evidence of our growing reputation and progress in building long-term relationships in the region.
10 APRIL 2011
We award the air traffic control industry’s first asset management certification to NATS demonstrating that NATS manages its assets in accordance with the British Standard’s Institute’s PAS 55 specification.
8 9 FEBRUARY 2011
MARCH 2011
The Energy Institute, Lloyd’s Register and the UK Health & Safety Executive release a joint report presenting industry with a practical way to measure the human factors ‘health’ of their safety regimes, opening the way to significant advances in workplace safety.
LRQA audits – and certifies – Carrefour’s headquarters in Brussels and two of its Belgian hypermarkets to international food safety standard ISO 22000. The award makes Carrefour one of the first international retailers to gain ISO 22000 certification.
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We win the ‘Best Process Improvement Programme’ award at the International Quality & Productivity Center’s (IQPC) European summit. The award recognises the vision, business impact and sustainability of our process excellence.
JUNE 2011
Lloyd’s Register Americas, Inc. moved its Houston area operations to a new regional headquarters. The move consolidates five separate businesses under one roof, responding to greater market demand for integrated technical solutions in the increasingly interdependent and complex marine and energy sectors.
Lloyd’s Register Group Review 2011 7
CHIEF EXECUTIVE’S REVIEW
C HIEF EXECUTIVE’S REVIEW Our success is a testament to the exceptional dedication of our management and employees, strong client relationships, prudent cost control and efficiency gains, and diversification into new markets and sectors.
This year, more than any, our business has reflected the global socio-political challenges that society faces. We welcome the public and political debate following the Macondo and Fukushima incidents, where risk and safety issues are now at the forefront of discussions surrounding the future energy mix. However, we are also cautious of increasing political pressure and influence from nation states, and will continue to support a global approach to global challenges through established institutions such as the International Maritime Organization (IMO).
The 2010/11 financial year has demonstrated that Lloyd’s Register has the resilience to grow in continuing difficult market conditions and maintain healthy margins. The underlying profitability of our business gives us the ability to add more value to society; through the high-value services we provide in assuring that assets and processes are safe, responsible and sustainable; through freely giving our intellectual property and experience to regulatory, research, industry and government bodies to promote safer conditions for society and better-performing assets and systems; and finally through direct funding of The Lloyd’s Register Educational Trust (The LRET). Put simply, more income and profit means greater contribution to society. We have forged ever greater alignment with The LRET which is building a global network of support for research institutions, in addition to its educational programmes. The first global collaborative LRET Collegium brought together 19 scholars for an eight-week research programme on carbon capture and storage. Safety remains at the heart of what we do, and we continue to invest heavily in improving our safety performance. While we are reassured by our continuing improvement, we are not yet at industry best standards and are committed to becoming a world-class safety organisation.
8 Lloyd’s Register Group Review 2011
Marine With large quantities of new tonnage delivering into the market and with demand sluggish for most ship types, the balance between supply and demand continued to worsen through this financial year. The financial outlook remains very difficult for bulk carriers and tankers in particular, while the other main ship market, containers, is showing considerable volatility. Against this backdrop, Lloyd’s Register won a significant share of what at times was a surprisingly high level of new construction projects. Lloyd’s Register’s teams in China and Korea have established a strong position in terms of ships ordered, with 29.6% and 28.3% of 2010 orders in China and Korea respectively. Last year we talked of a watershed moment approaching as the industry adapts to requirements to reduce its environmental impact. This remains true, although progress has been limited in developing common views on how to use new technologies to help make shipping more efficient, and the weak market conditions have not encouraged investment in new projects. However a significant milestone was reached in July with IMO’s decision to adopt the Energy Efficiency Design Index (EEDI). The role of marine classification remains vital in supporting the shipping industry as shipbuilders, shipowners and regulators seek support, advice and technical expertise in developing safe solutions to the operational and technical challenges facing shipping. The Group technology centres in Southampton and Singapore will bring us closer to academia, government and significant maritime clusters to support innovation in meeting these industry challenges.
Our demonstrated ability to show resilience in difficult market conditions gives us the means to add increasing value to society.
Energy Despite the prolonged harsh economic conditions, we continue to experience growth in our compliance services, technical services and wider business solutions as world energy consumption remained robust, particularly in China and other non-OECD countries. During the year we took every opportunity to reinforce our position in the energy industry. Our country teams across Asia established a very strong business in inspection and verification services, particularly in the Sino-India power trade. The upstream industry continues to face significant challenges as it moves into increasingly difficult environments. We have been active in the wake of the Macondo incident in providing advice on regulatory systems to help improve safety, and helping clients meet the requirements of the new regulatory regime.
LRQA Despite ongoing financial instability in many of our key markets, there is optimism that the majority of developing countries have regained full-capacity levels – a sentiment reflected in growth from our emerging markets, specifically South America, South East Asia and China. Our established markets of Western Europe and America have continued to perform in line with expectations. Understandably, the earthquake and tsunami in Japan and the political turmoil in the Middle East and North Africa have contributed to a slowdown in trade and revenue in these markets but this has been compensated by the overall regional performance and our commitment to growing the LRQA brand in these strategic markets.
ISO 9001 remains as one of the key foundation stones within our portfolio and has enjoyed continued growth during the period. LRQA has also seen steady growth in the demand from existing and We have experienced growth in new construction and conversion new clients alike for integrated management systems with specific projects for floating offshore installation (FOI), particularly the strong performance from ISO 14001, OHSAS 18001 and food safety, conversion of existing tankers to FLNG, FPSO and FSO. Lloyd’s Register including FSSC 22000 and ISO 22000. has committed to becoming a dominant player in the sector, with an investment programme under way combining resources from the The climate change arena remains turbulent with continued Marine and Energy business streams. uncertainty regarding the future of the Kyoto Protocol. Despite the post-Fukushima energy debate, we have seen continued demand for our traditional inspection and certification services, as well as our risk-based consulting activities, in the nuclear sector. Transportation Following a restructure in 2010 the Transportation business focused on providing two main service offers – independent assurance and expert advice – for the rail sectors situated within the core markets of Europe, the Middle East and Asia. The first full year of this streamlined model has seen the business make significant progress, reporting an increase of more than 20% on the previous year on a like-for-like basis. Asia has seen the most dramatic growth, with significant contract wins in Taiwan, South Korea and China. This rapid growth across Asia has led to challenges providing sufficient levels of resource. Recruitment programmes throughout the year have progressed and, with further growth anticipated, are set to continue.
Supporting growth To help our businesses in their growth ambition through improved services to existing and new clients, we have continued to invest in the Group support services to ensure sound governance, economy of scale advantages and professional advice to the sector businesses. New programmes have been developed by the Group functions of finance, HR, business assurance, communications, IS, corporate development, legal, procurement, corporate secretaries and our sales effectiveness programme. To monitor our progress through the next few years we continue to be guided by the Group strategy map – a balanced scorecard of key indicators that are both financial and non-financial.
The key themes to that strategy are ‘driving external focus’, primarily led by the businesses, ‘right people, right place, right time’, mainly led by the HR function, and ‘step change in efficiency and effectiveness’ which is a combination of effective processes and systems delivered through our regional structures, under the leadership of our new While we are keen to build domestic teams to serve local markets, a Chief Operating Officer, Richard Petrie. The success of this strategy major competitive strength lies in our ability to assemble international results in growing our value to society which, in one measure, is teams of experienced technical advisers. The UK business, for example, proved by our profitability as controlled by the finance function. has provided technical support on projects across Asia and, in particular, the Middle East. Our annual employee opinion survey has shown improvements across nearly all categories, particularly in communications, safety The reliance on state funding to instigate new developments and working life. There remain some areas for improvement, and as means that the existing two-speed nature of the rail market will a result we have put in place a number of initiatives to continue to continue, where some governments view major rail schemes as improve engagement, customer focus and reward. signature national projects, others favour targeted improvements aimed squarely at extracting value from their existing networks. I would like to personally thank all of our employees around the Either way, there is a growing need to provide assurance to world for their dedication and continuing belief in ‘doing something stakeholders that safety and performance have been subjected that matters’, and our clients for their support and sharing the same to qualified independent attention. values in helping make the world a safer place.
Richard Sadler Chief Executive Officer
Lloyd’s Register Group Review 2011 9
THE LLOYD’S REGISTER DIFFERENCE
I MPARTIAL A DVICE We are known around the world for the quality of our advice and for our independence, providing long-term confidence through our assurance and verification services. We help organisations comply with regulations and industry best practice so they can operate safely and productively.
10 Lloyd’s Register Group Review 2011
The industry needs one voice to stand up for shipping. Our vital industry needs to better protect and promote itself against repeated reactive, and increasingly regional, governance while still encouraging the innovation that we need. Richard Sadler, Chief Executive Officer
150m
LRQA has verified a further 150 million tonnes of carbon under the EU Emissions Trading Scheme. (see page 50)
We have issued guidance for shipowners to help them plan for the forthcoming ballast water convention.
Acting as the authorised inspection agency, LR Insurance, Inc. will help ISGEC Group prepare a quality system for audit for an ASME ‘N’ Stamp LRQA’s verification to ISO 14064 to fabricate critical nuclear provides transparent, third-party power equipment. evidence that Repsol’s greenhouse (see page 45) gas data is accurate and reliable. (see page 51) We have been preparing the industry for the introduction We will be providing verification of the new Maritime Labour and validation of the Taiwan Convention, providing advice Taoyuan International Airport and guidance to flag states Access MRT System throughout and operators. the construction, testing and commissioning phases. In its annual survey, Lloyd’s (see page 36) Register was recognised as the leading classification society by the Korean Shipbuilders’ Association (KOSHIPA). (see page 30)
Lloyd’s Register Group Review 2011 11
THE LLOYD’S REGISTER DIFFERENCE
B ROADER K NOWLEDGE From LNG as fuel to nuclear power to food safety, we bring together an extraordinary breadth of experience and expertise within a global team. Together – with our deep insight into the interface between assets, systems, people, and processes – we are uniquely equipped to help businesses ensure the quality construction and operation of critical infrastructure.
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There is consensus within highhazard enterprises that up to 90% of all incidents are caused by weaknesses or failures in human and organisational processes. James Amende, Director of Human Engineering Services, LR Scandpower Limited
Our joint report with the Energy Institute and the UK Health & Safety Executive highlights how organisations can better understand and manage the impact their employees have on safe and efficient operations. (see page 44) This year sees the first pure ergonomics proposal for our Rules for Ships: Part 6, Chapter 1 Section 3 for the ergonomics of control stations. Our Canada-based human factors team undertook a review of driver behaviour for Canadian Pacific Rail, which operates freight services throughout Canada, the US and Mexico. We completed an organisational integrity culture assessment of Carnival UK’s engineering department. We are providing competency assessment projects for Transocean’s entire deepwater fleet of 67 rigs located across the world. (see page 45) Failures in competence and in supervision are reported to have been factors in Buncefield and Macondo. Common safety methods and leadership programmes can address this.
Lloyd’s Register Group Review 2011 13
THE LLOYD’S REGISTER DIFFERENCE
D EEPER E XPERTISE Our reputation is founded on the skills and the experience of the people who make up our teams around the world. Every piece of advice we give is underpinned by a global research and development network that is continually helping us find new and better ways to improve safety and quality in the industries we serve. We are committed to being at the forefront of technological innovation and to sharing that knowledge to help make the world a safer place.
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LRQA, seen as a thought leader in climate change verification, is taking part in a pilot programme for product carbon footprinting in Japan. (see page 50)
With our technical support, the first flows of natural gas were delivered across the Mediterranean from Algeria to Europe. (see page 45)
Lloyd’s Register is the classification society involved in the largest LNG as fuel order under way with Viking Line’s new ferry. (see page 31)
With Shanghai ship design house Bestway, we have developed a new environmentally friendly bulk carrier design. (see page 30)
Work to support one of our key clients, NS Dutch Railways, during the modernisation of its VIRM fleet, includes research towards optimising the antilock braking system. (see page 36) Using a specialist test track in Germany, we have been exploring the potential effects of operating high-speed train services along lines that are parallel to those of conventional rail services. (see page 37)
50%
Scandpower’s RiskSpectrum software is used by 50% of the world’s nuclear power plant. (see page 43)
2013
We gave plan approval to Allseas Engineering’s Pieter Schelte which will be the largest platform removal and pipe laying vessel when it is delivered in 2013.
2014
Our Group Technology Centre opening in Southampton in June 2014 will provide a uniquely fertile ground to grow still further our all-important expertise. (see page 28) Lloyd’s Register Group Review 2011 15
THE LLOYD’S REGISTER DIFFERENCE
DENMARK Maersk Line’s carbon emissions data (see page 28)
NOVA SCOTIA, CANADA
CLOSER R ELATIONSHIPS We have an international network of some 7,600 experts across 245 locations. This global reach gives us an unrivalled view of the marketplace and the technical developments shaping today’s industry. It also ensures that, wherever you are, we will be nearby and able to apply a genuine understanding of local issues and help you operate more safely and sustainably. 16 Lloyd’s Register Group Review 2011
Deep Panuke floats (see page 44)
BRAZIL Food safety at Citrosuco (see page 50)
On the Deep Panuke production field centre project, we have worked on almost 200 vendor contracts around the world, covering everything from main process plant to electrical switchgear to over 100 kilometres of export and infield pipelines. (see page 44) A team from our UK, Hong Kong and Taiwan offices provided safety verification engineer certification services for the China Railways Construction Corporation during its construction of the Al Mashaaer Al Mugaddassah Metro in Saudi Arabia. (see page 36)
GERMANY Specialists in electromagnetic compatibility (see page 37)
FINLAND LNG as fuel (see page 31)
Our independent safety assessment for the design, construction, operation and maintenance of the Dubai Metro has involved as many as 30 colleagues from five different countries. (see page 36) Our inspectors across Europe carried out surveys during the build phase of Mammoet’s new heavy lift cranes. (see page 42) LRQA’s global presence has helped Repsol to achieve its objective to adopt common procedures, irrespective of location, for compliance with the EU Emissions Trading Scheme. (see page 51)
CHINA AND KOREA New construction in China and Korea (see page 30)
WESTERN AUSTRALIA Gorgon upstream project (see page 43)
UAE Deep Panuke floats (see page 44)
INDIA
TAIWAN
ISGEC Group stamp of approval (see page 45)
Taiwan International Airport transit link (see page 36)
Lloyd’s Register Group Review 2011 17
PUBLIC BENEFIT | SERVING THE COMMUNITY
HELPING TO MAKE THE WORLD A SAFER PLACE Our mission is set out in the charitable objectives of Lloyd’s Register: to protect life and property and advance transport and engineering education and research. All members of the Lloyd’s Register Group support these goals. Our independence means that our profits can be reinvested to support these objectives: funding the development of our services; public education, research and development; and charitable causes that support the Group’s mission. Our largest donations are made each year to The Lloyd’s Register Educational Trust (The LRET), an independent UK-registered charity, set up by the Group in 2004. In 2010/11 our donation to The LRET was £10.2 million. In our day-to-day work we help ensure that our clients’ assets and processes are safe, responsible and sustainable. The Group’s employees survey ships, oil platforms and other critical infrastructure against rules and standards and this work forms an important part of the asset’s safety regime. In this way we help to protect life – members of the public and employees, both ours and those of our clients – and property. Rules and regulations for safety Our expertise in transport and energy sectors means our input can help to improve regulatory regimes and to develop safe solutions to operational and technical challenges. We work closely with the International Maritime Organization (IMO) and with other leading classification societies to develop better technical foundations and regulatory support for the safety of shipping. An example of this was the development of the Common Structural Rules, which is described in more detail on page 29. In the upstream industry, making sure that equipment, people and systems all work properly together is likely to be the lasting legacy of the Macondo incident. We have been active in providing advice on regulatory systems and the benefits of using a risk-based safety case regime to help improve safety.
One of the most important ways that Lloyd’s Register benefits society is through its classification Rules and Regulations (the Rules). These set standards for the design, construction and lifetime maintenance of critical infrastructure – ships, offshore units and land-based installations – to help them function safely and sustainably. Some £16 million was invested last year to ensure that we have the knowledge and expertise to keep the Rules up to date and to introduce new Rules when new technologies are developed, so making sure that clients continue to innovate safely. We also develop and introduce new products and services to help improve the safety and operation of our clients’ assets. For example, we have provided the maritime industry with new tools to assess the potential for structural fatigue in vessels designed to trade in icy waters. In addition to our own research and development, we work with other organisations and bodies to tackle industry issues. In 2010/11 we worked with the Energy Institute and the UK Health & Safety Executive, to produce a report highlighting how organisations can better understand and manage the impact their employees have on safe and efficient operations. To support innovation we undertake joint investment projects with owners, builders and technology companies. In the past year projects have included designing a new environmentally friendly bulk carrier, and research into nuclear propulsion for deep sea oil tankers.
FINDING ECO-ENTREPRENEURS ACROSS ASIA-PACIFIC E-idea is a unique alliance between LRQA and the British Council that encourages young people to submit projects with a strong environmental focus into a national competition. The E-idea competition was launched in April 2011 in Japan, where a successful pilot scheme was run in 2010, and also ran in Australia, China, Indonesia, South Korea, Thailand and Vietnam. Winning projects could make a real difference to local urban communities facing environmental and sustainability challenges. The winners were announced in September and 40 young eco-entrepreneurs triumphed over a field of 888 applicants. The winners receive funding, access to a large global business network and are given commercial and marketing mentoring from LRQA and other industry specialists. The projects feature on the E-idea website, www.e-idea.org, and Facebook.
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SAFER, MORE FLEXIBLE, CONTAINER SECURING AND STOWAGE Lloyd’s Register’s new container securing Rules and software provide a robust framework for safer, more effective modern ship designs. They were developed after detailed consultation with major container shipping lines and manufacturers of lashing equipment. “These Rules are the culmination of a great deal of detailed work with operators, builders, designers and port operators,” said David Tozer, Lloyd’s Register’s Global Business Manager for Container Ships. “Safety, as always, comes first. But ensuring flexibility in loading and discharging operations is vital for operators. So these new Rules were created to combine safety and flexibility, allowing more sophisticated and varied container stows to save time and expense in port.”
Public education We contribute to public education through a range of other activities as well as funding The LRET. Our intellectual capital – our highly qualified researchers and engineers – is accessible to academics, students, regulators and professionals through committees, conference papers, publications and research made available to everyone. Given below are just some of the activities in 2010/11. • We gave the Institute of Marine Engineering, Science and Technology’s library a secure new home alongside our own library. The library is freely available to the public for research. • Three ‘LNG as fuel’ seminars, held in London, Busan and Vancouver, provided unique insight and guidance in this area. • A technical workshop on systems engineering in the Netherlands was aimed specifically at rail operators, governments and maintainers.
Benefiting local communities At the start of 2010, to mark the 250-year anniversary of Lloyd’s Register, we encouraged our colleagues to give something back to the community. The LR250 initiative gave everyone the opportunity to work on a project to benefit a cause of their choice. The Group winner of the campaign, a project providing clean drinking water to a school in India, was announced in November. The winning team, and winners of the EMEA and Americas groups, were given more funding to continue their projects. As the LR250 campaign was such an incredible success, Lloyd’s Register has set up a permanent programme called the LR250 Community Support Programme. Through this programme, employees in all countries will have a continuing opportunity to reach out and give back to their local communities through a dedicated stream of funding from the Group each year.
• In Chile, LRQA organised a conference to talk about three key issues: energy efficiency; corporate social responsibility; and the use of the risk management standard ISO 30001. • Employee Simon Emeny was elected as Chair of the new CEOC Energy and Efficiency Committee which will benefit from his knowledge across energy issues. • Our new guide gives practical advice to shipowners planning to recycle their vessels. • ModuSpec and the Transportation business both launched new training academies to help improve standards and skills across their industry sectors: drilling and rail.
LR250 winning project ‘Safe and clean drinking water’ in Salem, Tamilnadu, India. This project truly embodied the spirit of the campaign providing clean and safe water, the vital element to sustain life, to many children who otherwise would not have access to it. The project also made full use of the team’s engineering and project management skills.
Lloyd’s Register Group Review 2011 19
PUBLIC BENEFIT | THE LLOYD’S REGISTER EDUCATIONAL TRUST
THE LLOYD’S REGISTER EDUCATIONAL TRUST Numerous schoolchildren, university students, professional engineers and scientists, and research institutions have benefited from activities funded by The Lloyd’s Register Educational Trust.
The LRET has distributed more than £20 million in grants and has committed another £17 million for future projects. Michael Franklin, Director, The LRET
The Lloyd’s Register Educational Trust (The LRET) works to support advances in transportation, science, engineering and technology education, training and research worldwide for the benefit of all. It also funds work that enhances the safety of life and property at sea, on land and in the air. Since its formation in 2004, The LRET has distributed more than £20 million in grants and has committed another £17 million of funding for future projects, some of which will continue well into the future. The LRET puts great emphasis on collaborative working and is involved in an increasing number of programmes that link institutions with their counterparts across the globe. The LRET is an independent charity created by the Lloyd’s Register Group, its sole benefactor, which donated £10.2 million to The LRET in 2010/11. Decisions on how the funds are used are taken by its own Board of Trustees, with input from Director Michael Franklin. These funds are distributed across four sectors: pre-university education; university education; vocational training and professional development; and research. Of these, the research sector receives the greatest share to support new and existing centres of excellence covering a variety of industries. The LRET currently funds over 25 university research centres throughout the world with committed funds exceeding £11 million.
Vocational training and professional development: National Skills Academy for Railway Engineering (NSARE), UK; Royal Academy of Engineering, UK; Royal Institution of Naval Architects, UK; Royal National Lifeboat Institution, UK. Research: University of Twente, the Netherlands, leading a consortium involving two other Dutch universities: the Technical University of Eindhoven and the Technical University of Delft; National University of Singapore; University of Aberdeen, UK; Cardiff University: Seafarers’ International Research Centre, UK; City University London, UK, leading a consortium involving Loughborough University, UK and the Technical University of Delft, the Netherlands; University College London, UK, leading a consortium involving Harbin Engineering University and Shanghai Jiao Tong University, both in China; University of Southampton, UK.
FUNDED PROJECT HIGHLIGHTS 2010/11
Maintenance research and education programme The University of Twente in the Netherlands has been awarded funding over five years to establish The LRET Centre of Excellence in Maintenance Engineering and The LRET Maintenance Research & Education Programme. The research and Masters programmes integrate mechanical engineering and industrial design engineering, In 2010/11 the following organisations benefited from new LRET grants: incorporating statistics, risk management, logistics, sustainability, operations research, supply chain management and Pre-university education: Arkwright Scholarships Trust, UK; The Engineering Development Trust, UK; The Hellenic Marine Environment information systems. Protection Association (HELMEPA), Greece; ss Great Britain Trust, UK. Maintenance is a technical field which plays a key role in assuring University education: Arkwright Scholarships Trust, UK; International Maritime Law Institute (IMLI), Malta; Singapore Maritime Foundation, Singapore; University of Cambridge, UK; University of Glasgow, UK. 20 Lloyd’s Register Group Review 2011
the health of industry and public services such as transportation. Research in most fields of maintenance will be covered in study projects, knowledge exchanges and coaching for the public and private sectors.
Children put on track for career in railway engineering
Support for railway engineering training role The National Skills Academy of Railway Engineering (NSARE) is the newest of the UK’s skills academies. Its objectives include the promotion of railway engineering in schools and universities to encourage young people into this profession as well as improving the skills set of the current workforce and improving training by way of implementing an accreditation scheme. NSARE is an independent, not-for-profit organisation, jointly funded by industry, the UK government and other sponsorship partners. The LRET is funding the role of Head of Training and Skills at the academy for three years. Children put on track for career in railway engineering In April 2011, 100 school pupils gathered at the University of Nottingham, UK, to attend a railway engineering four-day residential course. Sponsored by The LRET, and organised and delivered by The Smallpeice Trust, this course forms part of a major initiative to encourage young people to consider railway engineering as a possible career in the future. Cutting across many disciplines, the course explored the design, construction and operation of railways and gives a valuable insight into what our future railways could look like. Research into offshore sector risks A consortium of three prestigious universities has been awarded funds to jointly conduct research into deepwater engineering and hydrodynamics. The five-year sponsorship to support safer and ‘greener’ drilling practices at deep-sea oil and gas fields was awarded to the UK’s University College London and China’s Harbin Engineering University and Shanghai Jiao Tong University. They will establish a joint LRET Centre and are expected to liaise closely with other LRET-funded research centres at the National University of Singapore and the University of Western Australia, expanding the global collaborative research network funded by The LRET. The LRET MaritimeONE scholarships To attract young people to pursue maritime education and careers, the Singapore Maritime Foundation and various partners spearheaded the MaritimeONE scholarship programme in 2007. The LRET is one of the scheme’s principal sponsors and funds nine two-year scholarships, supporting three students each year. Following the success of the initial four-year programme of funding, in 2011 this was continued for another three years. The LRET students study engineering with honours in naval architecture, with specialisms in marine engineering or offshore engineering. Based on the students’ examination results after their first year in Singapore, they will be awarded scholarships to continue their studies at Newcastle University in the UK. A recipient of The LRET MaritimeONE scholarship, Thomas Xie Binghan, said: “The MaritimeONE scholarship has exposed me to exciting and unforgettable learning opportunities which allowed me to interact with maritime professionals from around the world.”
RESEARCH COLLEGIUM INVESTIGATES THE CHALLENGES OF CARBON CAPTURE AND STORAGE An LRET-funded collegium at the University of Southampton, UK, combined students, faculty and the private sector to produce four technical papers that the authors hope will spur discussion and further innovation to solve the challenges of carbon capture and storage (CCS). The group of 19 young PhD or post-doctoral researchers came from around the world, including China, Australia, Korea and the US. The aim was to collaborate on finding potential solutions to the technical and socio-political obstacles currently slowing the global expansion of CCS. The projects looked at: injecting liquid CO2 into deep ocean pockets; design options for a floating thermal power infrastructure with CCS injection systems; a ‘Green Town’ pilot city to showcase existing air extraction techniques to remove CO2 to offshore injection sites; and injecting CO2 into ageing or depleted oil and gas reservoirs using offshore wind energy to power injection machinery. “The collegium created an environment where the engineers of the future could begin addressing the socio-technical challenges of today,” said Michael Franklin, Director of The LRET. “The results were impressive and, as The LRET’s mandate is to benefit the public, I can think of no better use for our funds.” “This endeavour shows that we can generate solutions to the global problem of climate change through dialogue, analysis and discussions between and among the world community,” said Professor Ajit Shenoi, University of Southampton. The LRET has agreed to fund similar events in 2012 and 2013.
Lloyd’s Register Group Review 2011 21
OUR EMPLOYEES
O UR EMPLOYEES The world incidents in the last year have emphasised the importance of the safety of our own employees and of their professional and technical skills to help make the world a safer place.
In helping clients to ensure the quality construction and operation of critical infrastructure our employees are essential to the success of our Group. They appreciate working for a public benefit organisation with safety at its heart, and their team spirit and values are illustrated in the story about the evacuation from Libya.
A VISION FOR HEALTH AND SAFETY Keeping our people safe, and through their behaviour helping to keep others safe, is perfectly aligned with the overall Lloyd’s Register strategy and our strapline, Life Matters. We consider the safety performance of our employees as being an integral part of how we deliver our services to clients. The last year has been one of intense activity for us in working to improve the health and safety performance of the Group. We completed most of the development of our new safety management system and the supporting training programmes. We have been working at embedding a strong safety culture at all levels and have been working closely with clients to help ensure the worksites where our employees work are suitably safe. Work throughout the year has been guided by our annual safety plan that was developed to support our health and safety strategy, which in turn is designed to move us towards achieving our stated vision of becoming a world leader at occupational health and safety. Specific areas of attention for us have been: • working at height – we have been rolling out practical working at height training worldwide through a number of approved training facilities • road safety – we have been improving the safety standards of cars used on our business and providing practical defensive driver training worldwide • introducing safety leadership training for our managers and directors • simplifying, consolidating and communicating our ‘Golden Rules’ for safety. We have committed to becoming certified to OHSAS 18001. We have been working with experienced in-house auditors to ensure that our system satisfies this standard and will shortly be starting the formal certification process. We see certification to OHSAS 18001 as providing a benchmark of our system and its implementation is a platform for ongoing improvement.
22 Lloyd’s Register Group Review 2011
While we fully recognise that safety is a journey and we must always work to improve, we have started to see some real improvement in our safety performance. Over the year our lost time injury incident rate improved by 36% (to 0.37 per 200,000 hours). We have also seen an increase in our near miss and safety observation reporting rates, in all businesses and areas. This is a really important indicator for us as it demonstrates that our employees’ hazard awareness is improving and provides us with data to validate the appropriateness of the controls that we have put in place. This reporting rate has increased 48% over the year; but even more encouragingly, we have seen a significant improvement in the quality of these reports and a greater degree of interaction with clients and worksite management to take appropriate action when unsafe conditions and acts are reported. We have also seen a second year of improving safety scores in our annual employee opinion survey. Safety has been the highest scoring area in this survey for the last three years and is useful in highlighting to us how our employees feel about our safety processes, training and the performance of their managers in safety leadership and responding to safety concerns. We are currently working on a number of important new initiatives, including the introduction of an integrated global medical, security support and travel tracking system. This allows us to track employees who are travelling and to provide them with up-to-date advice on security issues and medical requirements, such as inoculations. Over the coming year we will continue with our safety journey and focus on embedding safety into everything we do and continue to work with our clients to help keep their and our people safe.
DEVELOPING OUR EMPLOYEES AND OUR ORGANISATION Feedback from our employees through the annual employee opinion survey has continued to provide valuable insight into professional and technical development, as well as addressing our ongoing organisation development needs. Our Executive Leadership Team is providing senior sponsorship to these initiatives and feedback themes. Over the last year a third of our global senior leaders have attended an Essential Leadership programme which was designed to address the feedback highlighted in the employee survey, and to strengthen our leadership capability further by focusing on topics such as leadership, communication, motivating others and managing performance. All attendees completed the programme by delivering a presentation of their personal commitments. For our managers, this last year we have developed and introduced a new programme of development, Managing in Lloyd’s Register – Our People. This one-week workshop covers a range of management topics and sets out the standards by which managers are expected to manage their employees. The events are held regionally and delivered by our regional learning and development managers. To complement this programme, a suite of bespoke eLearning
modules have been developed and are sponsored by a director, Managing in Lloyd’s Register – Our Business. These modules are designed to ensure our managers understand all they need to know about certain key topics as a manager within the organisation. So far we have developed modules in law, business assurance, safety and human resources. In the coming months this programme will expand to include other core business management topics. This programme of development ensures that our managers are equipped to operate within an ever-changing business environment. Excellent progress was made in refining the professional development frameworks for each of our business streams and support functions. These frameworks will enhance our position as an employer of choice, and help us to continue to attract and retain the best employees so as to develop our technical excellence further and sustain our business. We have continued to strengthen our global HR network and capability by making key appointments, recruiting a team of HR business partners to provide focus and professional support to our businesses. Over the last 12 months significant investment and focus has been given to the development of our HR systems and processes. This strategic project will result in increased efficiency through the simplification of process, global standardisation, integration and automation. This will provide robust management information to analyse and to support business decisions and strategies.
TEAM EFFORT FOR EMPLOYEES IN LIBYA When the uprising against Muammar Gaddafi’s rule began in February 2011, the Group had 10 employees in Libya. Four employees at the Tripoli office, three at remote desert locations and three contractors on an oil platform in the Mediterranean Sea. Our greatest concern was to get them out of Libya quickly and safely. Our managers in Dubai set up a crisis team and worked out evacuation plans with the aid of several security consultants, management in London, the UK Foreign Office and others. Although some of the plans were disrupted, all employees were safely evacuated. One Libyan national remained in the country. The events showed what extraordinary teamwork we can achieve when faced with the most challenging situations. Not only did our team in Dubai keep in contact with everybody involved, they also contacted the families, offering support. The whole crisis meant working 24 hours a day for almost two weeks and a professionalism that went well beyond the normal call of duty. Three of the employees concerned received awards for their outstanding efforts; Ken Bruce, Area General Manager MEA; Simon Horner, MEA Safety Manager; and Thuraya Erabi, Finance & Administration Manager for Libya. Paul Graaf, Director EMEA remarked: “Their commitment and diligence made the evacuation possible. They gave the word ‘teamwork’ a new meaning and lived our values of courage, spirit, accountability and trustworthiness in the truest sense, sincerely deserving our Power of You Silver Awards.” In his speech Ken described the time as an emotional rollercoaster and as probably the most difficult challenge he has faced in his 32-year working life: “As a regular traveller in my job, if I ever found myself in such a situation, I know that working for Lloyd’s Register I could count on colleagues to do what I did to get me home safely to my family.”
Lloyd’s Register Group Review 2011 23
BUSINESS REVIEW
M ARINE When you work with us you benefit from some of the world’s finest marine experience, dedicated to delivering the very best service throughout the life of your vessel.
Cunard’s Queen Mary 2 is the largest passenger ship classed by Lloyd’s Register, at 151,400 gt.
45%
A market-leading 45% of the cruise fleet is classed by Lloyd’s Register.
6,318
The world’s largest cruise ship is Royal Caribbean International’s Allure of the Seas which can carry 6,318 passengers and 2,384 crew.
A Lloyd’s Register surveyor checks the tank plate of a new Carnival Cruises ship being built at the Fincantieri yard in Monfalcone, Italy.
BUSINESS REVIEW | MARINE
I NDUSTRY OVERVIEW Shipping remains an essential ingredient in world trade – there can be no global economic development without ships. Ships are vital in connecting the supply chains of all the commodities and goods that we need for sustenance, energy and quality of life.
02 IMPACT OF SLOWDOWN The global trade outlook is cloudy and, although demand for raw materials remains strong from China and other fast-developing countries, today’s economic uncertainty has affected trade and therefore shipping.
1,200
400
800 600
200
400 200 0
2008
2009
Order book
2010
2011*
2011F
04 THREAT OF PIRACY Piracy continues to be a leading concern for the industry and a problem that seems intractable. The economic cost of piracy in 2010 was estimated at US$7–12 billion with the average cost per hijack in 2011 predicted to be US$7.2 million. The industry has developed responses but remains reliant on the development of international political, social, military and legal responses to find long-term solutions at the Horn of Africa and elsewhere.
26 Lloyd’s Register Group Review 2011
0
2012F
World fleet size (RH axis)
Data source: IHS Fairplay database; include only commercial, self-propelled ships above 99 gt; 2011*: figures at June 30, 2011
CONTAINERSHIPS (8,000+ TEU) FLEET VERSUS TIMECHARTER RATES INDEX
Clarksons 000 TEU
4,000
03 REDUCING IMPACT ON THE ENVIRONMENT Environmental issues remain at the top of the shipping agenda. Forthcoming legislation, rising fuel prices and customer expectations are all driving change in the industry. A significant milestone was reached at the beginning of July 2011 with the International Maritime Organization’s (IMO) decision to adopt the Energy Efficiency Design Index (EEDI). In parallel, rising energy prices are forcing the development of more efficient designs and the use of alternative fuels such as LNG.
World fleet million gt
1,000
180
3,000
120
2,000 60
1,000 0
2007
2008
2009
2010
2011
Clarksons containerships TC index*
01 SUPPLY AND DEMAND Freight rates remain far below the highs of 2007/08 reflecting the balance between supply and demand as the existing large order book continues to enter the market and the world fleet is now bigger than ever. However, ordering has now slowed and the decline in new orders being placed is likely to continue. Where there is interest in new ships, this is primarily for new containership designs and for liquefied natural gas (LNG) carriers, as well as offshore assets such as FPSOs.
WORLD FLEET DEVELOPMENT VERSUS ORDER BOOK 2008–2011
Order book million gt
INDUSTRY ISSUES
0
8,000+ TEU container fleet development Containerships TC rate index *Containership timecharter rate index : based on US$/day per TEU for 1993 = 100; current month shows latest available end month data.
LOOKING AHEAD The shipping industry is becoming more complex. The interplay between new regulation, new technologies and rising energy costs is making technical and investment decisions more difficult than ever.
M ARINE REVIEW Lloyd’s Register’s Marine business is an impartial, independent and truly international service. Our investments in people, new technologies and projects promote a greater understanding of safe, efficient ship design and operations.
Lloyd’s Register is a technical and technology-focused organisation. We are dedicated to supporting innovation in shipping. And shipping faces significant challenges, especially in complying with environmental regulation and in capturing energy efficiencies. Last year we talked of a watershed moment approaching as the industry adapts to requirements to reduce its environmental impact. This remains true although progress has been limited in developing common views on how to use new technologies to help make shipping more efficient, and the weak market conditions have not encouraged investment in new projects. However a significant milestone was reached at the beginning of July with IMO’s decision to adopt the Energy Efficiency Design Index (EEDI). The role of marine classification remains vital in supporting the shipping industry as shipbuilders, shipowners and regulators seek support, advice and technical expertise in developing safe solutions to the operational and technical challenges facing shipping.
What makes a business sustainable is changing. We are putting evermore resources into helping all marine stakeholders better understand the implications of new regulation and new technology in our more complex world.
Lloyd’s Register may be the original classification society, but today it is the most diversified and although is number two in fleet size, has the largest network of surveyors and offices worldwide. Our breadth of capability is demonstrated by our large market share of all ship types. But it is significant that the two ship type segments where we are clearly the leading society – LNG and cruise – are the two sectors where safety, risk management, environmental management and comfort are most valued.
Tom Boardley, Marine Director
WORLD FLEET GROWS At 1,014 million gt (vessels 100 gt and over) the world fleet is now bigger than ever. With large quantities of new tonnage delivering into the market and with demand sluggish across most ship types, the balance between supply and demand continued to worsen through this financial year. The financial outlook remains very difficult for bulk carriers and tankers in particular while the other main ship market, containers, is showing considerable volatility. Against this backdrop Lloyd’s Register won a significant share of what at times was a surprisingly high level of new construction projects.
Lloyd’s Register Group Review 2011 27
BUSINESS REVIEW | MARINE
Commitment to reduce environmental impact IMO’s drive to address – and be seen to address – shipping’s environmental impact, was reflected at the July 2011 meeting of its Marine Environment Protection Committee (MEPC 62) when several important items of legislation were adopted. These included regulations on sewage treatment and garbage management, a new emissions control area for Central America and the introduction of the EEDI, a landmark piece of air emissions legislation.
Supporting innovation Our work in supporting innovation across the marine industry is central to our activity. Most progress so far in developing and initiating new ship projects incorporating new technologies has been in niche markets such as short sea and ferries. Lloyd’s Register is the classification society involved in the largest LNG as fuel order under way with Viking Line’s new ship being built at STX Finland, due for delivery in 2013 (see page 31).
The EEDI reflects the amount of carbon dioxide (CO2) generated per tonne-mile (cargo carrying capacity) for a particular ship type and size and is a uniform approach to calculating a ship’s energy efficiency during its design and build stages. By encouraging improvements in ship design, EEDI will be used to control CO2 levels emitted by future newbuilds.
Our future and that of the industry is increasingly bound by the need to collaborate with stakeholders in developing safe solutions to the operational and technical challenges facing the industry.
It will become mandatory from January 1, 2013 under MARPOL Annex VI. Provided the attained energy efficiency level is equal to or less than the required EEDI for that ship type, ship designers and builders will be free to use the most cost-efficient solutions for the ship to comply with the regulations.
With our new technology centres we will be closer to academia and significant maritime clusters to support innovation. The establishment of Lloyd’s Register’s Group Technology Centre opening in Southampton in June 2014 will see our Marine business relocate to the new centre. We will be co-located with the University of Southampton’s Faculty of Engineering and the Environment, offering us access to research and development facilities, and placing us at the heart of the Solent maritime cluster – the largest in the UK.
At the same time the Ship Energy Efficiency Management Plan (SEEMP), a mechanism for ship operators to improve the energy efficiency of ships by managing their individual efficiency measures, will become mandatory under MARPOL Annex VI for new and existing ships of 400 gt or more.
The new Southampton Group Technology Centre will provide a uniquely fertile ground to grow still further our all-important expertise. Our expertise is everything and a sustainable future for us lies in enhancing our capabilities and being better able to support the complex technical needs of our clients.
As a recognised organisation, Lloyd’s Register is well placed to provide EEDI verification, both for voluntary adoption and on behalf of the various flag states when it becomes mandatory. By choosing EEDI verification from Lloyd’s Register, clients benefit from support and assurance, built on our technical expertise, throughout the design and build process.
At the same time we are working on plans to establish a Group Technology Centre in Singapore as we look to develop internationally recognised centres of excellence combining the best of business, academia and government.
Highlights for other environmental services during the year included the verification of Maersk Line’s carbon emissions data and the independent assurance of BP Shipping’s environmental performance to ISO 14001.
Another approach to support innovation is by undertaking joint investment projects with owners, builders and technology companies. Significant projects in the past year include a new environmentally friendly bulk carrier design developed with Shanghai ship design house Bestway (see page 30) and research into nuclear propulsion for deep-sea oil tankers with a major Greek owner.
VERIFICATION OF MAERSK LINE’S CARBON EMISSIONS DATA Independent assessment delivered as manufacturers intensify search for ‘greener’ transport providers. Lloyd’s Register has provided independent verification of Maersk Line’s CO2 emissions in support of the leading operator’s efforts to measure and manage its emissions. The verification, based on an office assessment of the shipping line’s processes for data management and an audit of the Maersk Clementine, comes at a time when leading manufacturers are increasingly asking their transport companies to provide proof of their ‘green’ credentials. “Maersk Line is to be congratulated for taking the lead in promoting transparency and credibility with regard to carbon emissions,” said Madlen King, Head of Climate Change and Sustainability, LRQA.
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Better technical foundations and regulatory support We continue to work closely with IMO and with other leading classification societies to develop better technical foundations and regulatory support for the safety of shipping today and tomorrow. An example of this is the establishment of Common Structural Rules Software LLC. A new era began in April 2006 when, following five years of development activity, International Association of Classification Societies (IACS) introduced Common Structural Rules (CSR) for tankers and bulk carriers. The agreement to develop common classification rules was of course common sense but moving from the idea to reality involved many challenges. Classification turned a corner with the CSR and ensured that, in principle, the rules for structures would be the same for all the leading societies. Headlines such as, ‘Scantlings should not be a matter of negotiation’ (Lloyd’s List – 2001), should be a thing of the past. Having established the CSR, the most important challenge that still remains is to support the rules with ever-better common software so that, in practice, the same rules will produce the same result from ship design and assessment software. This is not yet the case today. But it can and should be. We believe that the establishment of Common Structural Rules Software LLC by Lloyd’s Register and the American Bureau of Shipping (ABS) now offers the industry the common software solution that it has been asking for and it is our hope that other IACS members will join us in supporting such a common approach – an approach we believe would be in the best interest of shipbuilders, owners and, most importantly, maritime safety. Designers and builders will have greater confidence that they are complying with the rules before they start cutting steel. Owners will have confidence that a common rule set will produce the same results, eliminating concerns over different results emerging from the computer coded calculations or differing interpretations in the application of the rules through software.
Air flow around the deckhouse before (top) and after (bottom) the modifications, showing the achieved wind drag reduction
DRAGGING THE EEDI DOWN Aerodynamic modifications to ship structures can reduce drag, leading to fuel savings and a lower overall EEDI. In 2010, we carried out a study with a London and Greece-based client to apply this theory to a 95,000 dwt bulk carrier using computational fluid dynamics (CFD). Air flow was modelled to assess wind drag and this included examining the effect of adding fairings and repositioning deckhouse appendages. The findings showed that large reductions in wind drag, up to 20%, were possible by attaching well-designed fairings to the ship and altering appendages on the deckhouse and funnel. This equated to an estimated fuel saving of 2.5% when sailing at 14 knots into a 22 knot headwind. Smaller, but still significant, fuel reductions were also estimated for lower wind speeds. Since completion of this work, we have repeated the study on a 59,000 dwt bulk carrier. This achieved a similar fuel consumption reduction, demonstrating the potential for consistent savings when applying the same technique to ‘classic’ bulk carrier designs.
Lloyd’s Register Group Review 2011 29
BUSINESS REVIEW | MARINE
Significant new construction in China and Korea Trust in service levels and technical capability proved to be a winning combination for Lloyd’s Register in Asia in 2010. Our teams in China and Korea established a strong position in terms of ships ordered which will be built to Lloyd’s Register class. Our share of 2010 orders is, respectively, 29.6% in China and 28.3% in Korea. While orders are from traditional areas of strength such as Greece, the continued expansion of shipowning in Asia is also driving demand. The huge investments made in China by Lloyd’s Register included the development of innovative services to support Chinese shipbuilders and both Chinese and international owners building in China. By listening to yards and owners and providing the services that they need, our investment has led to clients placing their trust in Lloyd’s Register in China.
LOOKING AHEAD With market conditions deteriorating the commercial outlook remains highly uncertain. At Lloyd’s Register our focus will remain on helping the industry to innovate and to capture efficiencies that will help the industry meet the needs of its customers to comply with regulations and reduce operational costs while enhancing safety and operability. This is quite a task. The world is growing more complex and we must support shipowners, shipbuilders and cargo interests as they grapple with the challenges they face.
In its annual survey, Lloyd’s Register was recognised as the leading Supporting strong market demands for innovation and for cleaner classification society by the Korean Shipbuilders’ Association (KOSHIPA). ships is going to continue to be our most important focus and goes Country Manager in Korea, Luis Benito said: “We are doing all that hand in hand with our role as a safety organisation. we can to help ensure consistent, safe, service delivery and we see this recognition as a great honour – as well as a reflection of the hard work put in by our teams to support Korean newbuilding projects.”
DESIGN VENTURE OFFERS IMPROVED ‘GREEN’ BULK CARRIER ‘Emerald’ design offers a lighter and environmentally friendly ship as project exceeds fuel-saving targets. Lloyd’s Register and Shanghai-based Bestway Marine Engineering Design have completed their joint-industry project to develop a trendsetting environmental bulk carrier, with results far exceeding expectations. According to the provisional data from the project, the new design for a 35,000 dwt bulk carrier will achieve an 18% improvement in environmental efficiency over comparable previous versions when measured against IMO’s Energy Efficiency Design Index, a method by which a ship’s CO2 efficiency is measured. “This project clearly demonstrates what can be achieved through the power of technical co-operation,” said Nick Brown, Lloyd’s Register’s Country and Marine Manager, China. “It showcased our technical expertise and ability to provide timely insights and support to innovative designers such as Bestway right from the initial design stage. This project also highlighted the leadership Bestway is taking in the area of ship design. We are confident about working together again with Bestway on safe and efficient designs in the future.”
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With a maximum speed of almost 23 knots, the ropax will be able to carry 2,800 passengers and will have a hoistable car deck with a vehicle capacity of 1,100 lane-metres and 1,300 lane-metres of truck capacity. It will operate between Turku and Stockholm in Sweden and is being designed to cope with the comparatively sensitive and shallow waters of the Finnish archipelago.
Lloyd’s Register surveyor, Alessio Cendron, at the Wärtsilä engine plant in Trieste. This factory will be building the engines for Viking Line’s LNG powered ferry project.
LNG AS FUEL
“LNG tends to suit ferries better than other types of vessel as they follow fixed routes between ports with LNG terminals in the neighbourhood which makes them easy to bunker. The same bunkering facilities aren’t yet available for other ships including cruise ships,” said project manager Matti Niskala, the Group’s Finnish Marine Country Business Manager. However with the innovative groundwork that is being achieved on the current project, Niskala and his team believe other vessels should be able to make the switch to LNG in five to 10 years’ time.
“The ropax will be the first newbuild to comply with our provisional rules for LNG propulsion although we’ve overseen and applied the same set of rules to a number of other vessels, notably the Accolade bulk carrier which is the world’s first LNG-fuelled ship. Since the STX-Viking contract was signed, we have also provided the STX technical team with assistance We were the first classification society to class dual fuel ships on issues such as developing LNG storage facilities and process and were pioneers in assessing their safety and operability. piping,” said Niskala. Lloyd’s Register understands LNG; we have been involved with gas ships since they were first developed. Today we are the class leader in the LNG sector with the largest share of LNG carriers and we classed the first of each, and most of, the Q-Flex and Q-Max ships.
When Finnish owner-operators STX Finland and Viking Line sought a technical partner to help design and classify a new ropax ship fuelled by LNG, they approached Lloyd’s Register with its renowned expertise in LNG as a fuel.
“We carried out a detailed risk analysis for Viking Line on the bunkering process to identify and minimise risks associated with the movement of the bunker barge and ship within the confines of the port, the risks associated with the simultaneous loading of passengers, cars, lorries and LNG, and to help The result will be the world’s first large ferry to use LNG as its main source of power. The 56,850 gt ferry will be built at ensure compatibility between bunker barge capacity and Finland’s STX Turku shipyard, one of Europe’s largest and the the ship’s systems.” source of the world’s biggest cruise liners, Allure of the Seas The ropax ferry project poses many technical challenges for and Oasis of the Seas. One of the options in the newbuild both owner and builder. “As well as ensuring the safety of contract is for a sister LNG ferry to be built. the LNG system, a key issue will be the integration of both LNG and oil fuel installations and compliance with the new The huge ferry, which is due to be delivered at the start IMO ‘safe return to port’ requirements, a procedure on of 2013, will be the world’s most environmentally friendly which Lloyd’s Register is a world leader,” said Niskala. passenger ship, with minimal CO2 and virtually nil sulphur oxide (SOx) and nitrogen oxide (NOx) emissions. Wave formation and noise generation on the 210-metre-long vessel will also be negligible.
Lloyd’s Register Group Review 2011 31
BUSINESS REVIEW
TRANSPORTATION With our global reach and local presence, we are able to adjust our services to suit the demands and expectations of clients from all countries and across all aspects of the rail industry.
Our position in the Chinese market was underscored with a special award from the Beijing metro construction company in recognition of our assessment services.
By 2020, China will have increased its track by some 45,000 kilometres in just 15Â years, enough to circle the Earth at the equator and to cross the Atlantic again.
3.5%
Global passenger rail traffic up 3.5% in 2010 Source: International Union of Railways (UIC)
BUSINESS REVIEW | TRANSPORTATION
INDUSTRY OVERVIEW Governments the world over view rail as integral to the sustainable growth of their economies.
INDUSTRY ISSUES
TRANSPORT CO2 EMISSIONS 2008
As ever in an industry so closely tied to the policies and fortunes of the incumbent government, investment in rail infrastructure can vary considerably from one territory to the next. Where stimulus packages in some countries have singled out rail as essential for long-term growth, in others there has been a marked slowdown in new projects.
7 5 4
In the Middle East, for example, a sharper than expected downturn saw several countries put plans for major schemes on hold, but at the same time countries such as Qatar are embarking on a substantial programme of national and urban rail development. 01 URBANISATION AND DEMAND FOR TRANSPORT By 2100, 75% of the world’s population will live in its urban settlements yet currently only around 80 large urban centres have a subway system, most of which are in developed countries. The gap between the supply of transport infrastructure and future demand is broadening. 02 ENERGY EFFICIENCY Energy efficiency is a growing topic in rail circles. Many operators are under pressure to reduce costs. On electrified lines, where train movements account for around 85% of the electricity bill, applying smarter methods, for example improved driver skills, is a good place to start.
1
6
3 2
1 Road – 72% 5 Domestic navigation – 2% 2 Rail – 2% 6 International shipping – 9% 3 Domestic aviation – 5% 7 Other transport – 3% 4 International aviation – 7% Source: International Transport Forum, Transport Greenhouse Gas Emissions 2010
DEVELOPMENT OF THE WORLD HIGH-SPEED NETWORK Km
40,000 35,000 30,000
03 ASSET MANAGEMENT Ongoing asset maintenance and management of assets is the major cost for an urban metro operator. Some systems operate with rolling stock expected to last for 40 years or more. It’s a costly and constant challenge keeping trains continually available while ensuring they adapt to changes in society, such as improved access for disabled passengers. LOOKING AHEAD Despite a varied picture on a country-by-country basis, the outlook for the global industry is relatively stable with the market expected to grow steadily by 2.5% per annum over the next three to five years. This is because many governments and analysts fully recognise rail’s undoubted contribution to tackling some of the world’s most complex challenges. Urbanisation, energy costs, climate change and growing freight volumes are issues that will preoccupy developed and developing countries alike. Rail’s position as a sustainable and efficient mode of mass transportation only strengthens its case for investment and political support.
34 Lloyd’s Register Group Review 2011
25,000 20,000 2010
15,000 10,000 5,000 0 1984
1974
1984
1994
2004
2014
Source: High speed rail – Fast track to sustainable mobility, UIC 2010
2024
TRANSPORTATION REVIEW Emerging economies need safe, sustainable and low-carbon transportation systems and are set to lead the demand for new rail systems.
One of our major competitive strengths resides in our ability to assemble international teams of experienced technical advisers. It is a capability that few other organisations are able to offer. John Stansfeld, Transportation Director
Following a restructure in 2010, the Transportation business focused on providing two main service offers – independent assurance and expert advice – for the rail sectors situated within the core markets of Europe, the Middle East and Asia.
Our position in the Chinese market was underscored at the turn of the year with a special award from the Beijing metro construction company in recognition of our assessment services during the construction of the Yizhuang and Fangshan lines. The Yizhuang line heralds a particular milestone as it is the first in Chinese history to use signalling technology wholly developed and manufactured in China.
The first full year of this streamlined model has seen the business make significant progress, reporting an increase of more than 20% on the previous year on a like-for-like basis.
We are now progressing with safety assurance services on lines under construction in Xi’an, Shenzhen, Chengdu and Hangzhou, while in Hong Kong we are continuing to work closely with MTR, the city’s rapid transport operator.
Growing presence in Asia It is in Asia where we have experienced the most dramatic growth. The award of a £3 million contract for the independent verification and validation of the new Taiwan International Airport transit link (see overleaf) is clear evidence of both our growing reputation and progress in building long-term relationships in the region. The contract extends our involvement in this project, which began during the initial design stages in 2008, until final completion in late 2014. In South Korea we have commenced independent safety assessment services for the Sin Bundang Line, a privately funded 18-kilometre metro in southern Seoul that marks the first use of a driverless communications based train control system (CBTC) in Korea. We have also been appointed independent safety assessors (ISA) for a new six-kilometre line that will serve Incheon International Airport using Maglev technology.
In March 2011 we secured a major contract to certify further CBTC systems developed in China, a notable project in its own right as it demonstrates the continuing ascent of Chinese-designed rail technologies for markets at home and abroad. This rapid growth across Asia has led to challenges providing sufficient levels of resource. Recruitment programmes to add the required skills and experience to our teams based within the region progressed throughout the year and, with further growth anticipated, are set to continue.
Lloyd’s Register Group Review 2011 35
BUSINESS REVIEW | TRANSPORTATION
A COMPLEX AND TECHNICALLY CHALLENGING ENGINEERING PROJECT The Taiwan Taoyuan International Airport Access MRT System is a 51-kilometre rapid transport system that will connect Taiwan’s main international airport at Taoyuan with Taipei and other major centres on the island including Zhongli, Xinzhuang and Sanchong. When fully operational, the service will provide a mix of express services between the airport and principal stations to Taipei, as well as local stopping services serving the local communities within the area. Having provided assurance services during the metro’s initial design phase, we will now be providing verification and validation throughout the construction, testing and commissioning phases, ensuring our continued support for the project through to final completion expected in December 2014. This will be a complex and technically challenging project involving a route that includes difficult mountainous terrain and steep gradients, coupled with the need to combine express and stopping services. We will be providing a major contribution towards ensuring that when the system enters into service it will be safe, efficient and a significant benefit to the surrounding community.
International class Though we are keen to build domestic teams to serve local markets, a major competitive strength resides in our ability to assemble international teams of experienced technical advisers. It is a capability that few other organisations are able to offer.
Diverse order book in Europe Our UK business is providing engineering system and safety support for Network Rail during the implementation of the Automatic Train Operation and European Train Control System on the Thameslink route in London. And we are contributing to Network Rail’s design of a seasonal treatment train for lines that operate with a third rail The UK business, for example, has provided technical support on to improve operational resilience. We were also the notified body assignments across Asia and, in particular, the Middle East, where for the introduction of 30 new passenger trains for the new Stansted we have been involved in some eye-catching and challenging projects. Express fleet. A team from our UK, Hong Kong and Taiwan offices provided safety verification engineer certification services for the China Railways Construction Corporation (CRCC) during its construction of the Al Mashaaer Al Mugaddassah Metro in Mecca, Saudi Arabia. The first phase of this 18-kilometre metro opened in November 2010 for the annual Hajj pilgrimage, barely 20 months after detailed design began. Phase two, which will introduce driverless operation and help increase capacity, will be ready in time for the 2011 Hajj. In Dubai we continued as the ISA for the design, construction, operation and maintenance of the Dubai Metro through to the opening of its 17-kilometre second line in September 2011. This extensive project has involved as many as 30 colleagues from five different countries over the course of its four years.
36 Lloyd’s Register Group Review 2011
Our Netherlands business delivered a solid performance, driven, in part, by our contribution to the electromagnetic compatibility testing programme on the Dutch High Speed Line (see next page). Other major projects include supporting one of our key clients NS Dutch Railways during the modernisation of their VIRM fleet, with our work ranging from advising on disabled passenger access through to research towards optimising the antilock braking system. And we are the notified body to ensure conformity against European Directive 2008/57 for new rolling stock on the Amsterdam–Brussels high-speed route. We are also providing considerable support to a major pan-European research project – the ‘Whispering Train’ – exploring potential noise reduction technologies that can be fitted to freight vehicles. Over a two-year period a test train, known as ‘EuropeTrain’, is testing specific, composite brake-blocks across a broad range of European conditions, from Scandinavian winters to Italian summers, from the Alpine mountains to the North European lowlands. The tests started in December 2010 and are expected to conclude in mid 2012.
It proved a successful year for Gotcha, our track-based monitoring technology. Contracts for new installations and technical support for ProRail, the Dutch national infrastructure manager, helped to strengthen our position in the local market and 10 new monitoring platforms were installed for the National Office for Railways (ONCF), the national railway operator in Morocco. Gotcha is now currently used in the Netherlands, the UK, Switzerland, Sweden, Austria, Morocco and Poland with work under way to secure its implementation on the Spanish network. Progress in the Scandinavian market has benefited from our Group member Scandpower. In March 2011, Scandpower and Lloyd’s Register were appointed by DSB, a Danish rail operator, as the ISA to the software for the train computer management system on the IC4 train project, an agreement which also marked recognition by Trafikstyrelsen, the Danish Rail Authority, of our capability to support the Danish rail market. Scandpower’s knowledge of the domestic market also led to new notified body projects for clients in Sweden, such as Kockums and Hector Rail. In Spain we have sought to diversify the services offered to the local market, with a particular emphasis on extending our product certification and ISA services. This included collaborating with UK colleagues as ISA of a new interlocking system.
Gotcha noise measurement
SPECIALISTS IN ELECTROMAGNETIC COMPATIBILITY
Developing tomorrow’s transport professionals We launched the Lloyd’s Register Transportation Academy in April 2011 which consolidates and extends our training service offer. In addition to a range of traditional classroom-based technical briefings, we have extended our provision of tailored in-company training programmes and individual mentoring. Much of the Academy’s initial focus and development will be aimed at the Asian market.
Electromagnetic compatibility (EMC) is an area of significant interest for a railway. The track environment contains various technologies – signalling, radio, power supplies – that can generate, or be affected by, electromagnetic disturbance and its potential to cause system failure, reduce service reliability and degrade performance across the wider network.
LOOKING AHEAD
Using a specialist test track in Wildenrath, Germany, colleagues from our Utrecht office have been conducting extensive tests for a major client looking to explore the potential effects of operating high-speed services (that use a 25 kV AC, 50 Hz electrification system) along lines that are situated parallel to those of conventional rail services (which use 1500 V DC).
The reliance on state funding to instigate major new developments means that the existing two-speed nature of the rail market will persist for the foreseeable future. Where some governments view major rail schemes as signature national projects, others favour targeted improvements aimed squarely at extracting value from their existing networks. Either way, on systems old and new, there is a growing need to provide assurance to stakeholders that safety and performance have been subjected to qualified, independent attention. The diverse nature of our skills, the extent of our technical knowledge, and our deep understanding of local markets all combine to form a strong, sustainable competitive edge. We are well positioned for further growth within this vital and engaging sector.
Over the course of the research more than a dozen types of rolling stock – including electrical multiple units, locomotives and freight wagons – have been put through a series of test runs. In each case, teams with specialist knowledge of the vehicle type in question were assembled to ensure the appropriate equipment for each was correctly installed and checked, and that the test programme incorporated every possible condition of track, train and operational mode in order to provide the most comprehensive measurements possible. Throughout the project our extensive knowledge of vehicle design and operation has proved invaluable to the client. Not only for ensuring accurate test results were captured at every stage, but also for helping to analyse the huge volumes of data generated during the exercise, helping to develop the clearest possible picture of EMC in the full working environment.
Lloyd’s Register Group Review 2011 37
BUSINESS REVIEW
E  NERGY In a challenging business environment, safety, risk and technical assurance is crucial. We help clients face today’s energy challenges and plan for tomorrow.
In April the Deep Panuke Production Field Centre left Abu Dhabi en route for Canada. (See page 44)
By 2030, the world could be using 50% more energy than it does today.
7.4%
World natural gas consumption growth in 2010, the most rapid increase since 1984. Source: BP Statistical Review of World Energy June 2011.
Photo courtesy of SBM Offshore
BUSINESS REVIEW | ENERGY
I NDUSTRY OVERVIEW The world can no longer avoid the hard truths about future energy provision.
INDUSTRY ISSUES
FINAL ENERGY CONSUMPTION BY REGION
The energy industry faces a series of profound challenges which are often interrelated. As energy demand accelerates, keeping up sustainable supplies will take concerted effort. An integrated set of power generation solutions, taken together and over the long term, will develop new and safer supplies of energy, accelerate gains in the efficient use of energy and deploy new technologies to curb greenhouse gas emissions. 01 SURGING ENERGY DEMAND Growth in population from 6.8 billion today to 9 billion by 2050 combined with increasing prosperity among emerging nations is driving a surge in demand for energy. It is estimated that by 2020 the world will need to replace 40 million barrels of daily oil production as a result of the decline in existing fields. Most of this will need to come from hard-to-reach resources. 02 SUSTAINING ENERGY SUPPLY The International Energy Agency says the world will need to invest about US$1.1 trillion every year for the next 20 years in new energy projects if supply is to meet demand. Today around 85% of the world’s energy comes from hydrocarbons. But by 2050, renewables could make up 30% of the global energy mix (if hydroelectricity is included) with fossil fuels and nuclear making up the rest. 03 THE PACE OF PROVEN NEW TECHNOLOGY Once a new energy technology is proven, it takes about 30 years for it to achieve 1% of the overall market. Biofuels are just reaching 1% of the oil market, or about 0.5% of total energy, after decades of development and government support. Wind will get to the 1% mark nearly three decades after the first big wind farms were built in Denmark and the USA. 04 ENVIRONMENTAL IMPACT Scientists say the world needs to cut greenhouse gas emissions in half by mid century, if we hope to avoid the worst effects of climate change. Yet accelerating energy use means that globally, energy-related carbon dioxide (CO2) emissions are set to rise by an average of 1% a year through to 2030. LOOKING AHEAD As industry plans for the future, it is not only the tremendous growth in energy demand that should guide decisions. There must also be a thorough understanding of the magnitude of the investment and timescale required to meet the supply challenges in a safe and sustainable way.
40 Lloyd’s Register Group Review 2011
Exajoule (EJ) per year
600
400
200
0 2000
2010
2020
2030
2040
2050
Sub-Saharan Africa
Asia & Oceania – developed
Middle East & North Africa
North America
Latin America
Europe
Asia & Oceania – developing
PRIMARY ENERGY BY SOURCE EJ per year 800 600 400 200 0 2000
2010
2020
2030
Other renewables
Coal
Biomass
Gas
Nuclear
Oil
2040
2050
Biomass includes traditional renewables such as wood, dung, etc. © 2008 Shell International BV All rights reserved. The illustrations above have been published in the review with the kind permission of Shell International BV and may not be reproduced, stored in a retrieval system, published or transmitted, in any form or by any means, without the prior written permission of Shell International BV.
ENERGY REVIEW Companies serving the energy industry will have to consider both technical and human factors when providing solutions to manage potential threats, and while the challenges of a new generation of energy supply are indeed immense, safety will continue to be paramount.
If companies do not rise to meet the challenges of safe asset management, they not only risk lengthy programme delays but jeopardise the safety of emerging sources of energy. Paul Huber, Interim Energy Director and President Lloyd’s Register Americas
There were fewer than 12 months between the Macondo disaster in the Gulf of Mexico and the catastrophic earthquake and tsunami in Japan that crippled the nuclear facility at Fukushima. These two events have significant implications for industry as a whole and for the role of Lloyd’s Register within it. Rebuilding confidence in nuclear power Our clients manage valuable assets where the cost of mistakes can be very high, both financially and in terms of the impact on local communities and the environment. The events in Japan have shaken public confidence in nuclear power, and rebuilding acceptance will be a major challenge. Key to this will be transparency in performing safety reviews and stress tests and communicating their results. Truly independent, third-party assessment and verification of safety reviews provide reassurance that what was planned to be done has indeed been done.
What our clients do today and how they do it, affects their reputation and their integrity
The backbone to our strategy is building a solid understanding of the risks associated with nuclear energy production and assisting energy suppliers with developing the systems to manage those risks. Our work on Oskarshamn 3’s power upgrade from 1200MW to 1400MW will support the nuclear power company OKG in its operation of the largest boiling water reactor in Sweden. And our strategy extends as far as China. We were one of the first foreign companies to join the membership of the China Nuclear Energy Association (CNEA), a non-governmental organisation that promotes safety, industrial innovation and the advancement of technical standards. Our new joint venture company, Lloyd’s Register Apave Ltd, was created by Lloyd’s Register EMEA and Apave Sud-Europe bringing together unrivalled experience in Europe’s nuclear industry. It was appointed by the Nuclear New Build Generation Company (NNB Genco) to support the safe construction of its first phase of the UK’s new nuclear programme. This represents one of the largest single contracts in the history of Lloyd’s Register and comes less than a year after we acquired Scandpower, which enhanced our ability to deliver the full spectrum of technical risk management services to energy clients. This helps fulfil our public benefit mandate and reinforces our leadership position in the nuclear industry at a time when society’s commitment to carbon-based fuels has come under increased scrutiny.
It is expected that the aftermath of Fukushima will see a decline in the life extension of older stations accompanied by an upsurge in decommissioning and an acceleration of spent fuel plans including final repositories. Underpinning all of this will be a move towards harmonised international regulation and standards, and an increased focus on skills, training and safety. Lloyd’s Register has the capability and skills to support the industry in all of these areas.
Lloyd’s Register Group Review 2011 41
BUSINESS REVIEW | ENERGY
The fossil fuel agenda The response of the United States government to the Macondo incident in the Gulf of Mexico has seen the most aggressive and comprehensive reforms to offshore oil and gas regulation in US history. Most companies will need to make drastic, long-term cultural changes to respond to new operating regimes, and many will require specialist guidance and expertise in assurance compliance to help them navigate complex new frameworks. Our audit protocol is just one means we devised to help oil and gas operators in America through 13 comprehensive programmes to meet the requirements of its new regime.
that carbon capture and storage could account for more than half of the global CO2 reductions needed this century to avoid the worst effects of climate change. We are experiencing a sharp increase in enquiries from clients who are working on ways to capture CO2 emissions from power plants, refineries and other large industrial installations, and store it safely underground. One of the commercial projects we are working on is the Gorgon LNG development in Australia where it is planned to capture some 4 million tonnes of CO2 a year. And on behalf of Doosan Babcock (Scotland), we completed a hazard identification (HAZID) exercise on what will be the world’s largest carbon capture plant – to capture CO2 from the flue gas stream of the Antelope Valley coal-fired power station in North Dakota, USA.
The upstream industry continues to face significant challenges as it moves into increasingly difficult environments. Emerging areas, which include the Arctic, the Caspian, north of Norway and Northern Winds of change Siberia, present varying degrees of technical, cultural, logistical and The challenge to all countries to provide secure, sustainable electricity political challenge. Our knowledge is helping to turn innovative supplies with minimum impact on the environment is one that projects into safe and successful long-term enterprises. occupies governments and power companies alike. Our work with AGIP KCO on the Kashagan Project, in the harsh By 2050, 30% of world energy demand is expected to be met by Caspian Sea, continues with great success thanks to the hard work renewable sources such as wind, wave and tidal power. In Northern of our teams, both in-country in Kazakhstan and in the UK, UAE Europe there are already 1.2GW of offshore wind operating with and other parts of our global business. The design appraisal team a further 40GW under development and construction. Lloyd’s has completed the review of 9,000 final-phase documents in just Register, with its extensive experience in the marine and upstream eight months. sectors, is well placed to expand its services into this growing market. We developed the safety case for the first offshore wind turbine in The new Group Technology Centre in Singapore will become an the North Sea, and are currently working on the construction of essential part of our future. Singapore is one of the leading centres offshore wind farm supply vessels, a key logistical bottleneck in for construction and conversion of floating offshore installations the sector. (FOIs), such as deepwater drilling units, as well as FPSOs. And we are positioning ourselves in the fast-growing liquefied natural gas (LNG) market where global production capacity could more than double by the end of the decade. The fastest growing exporters of LNG are in the Middle East and Africa where there remain issues – particularly over safety and environmental considerations. However, coal is likely to remain the dominant fuel worldwide for power generation and a great deal of effort is being put into ‘cleaning’ up coal. The International Energy Agency (IEA) estimates
We were closely involved in creating guidelines for the European Marine Energy Centre (EMEC) standards and have carried out peer reviews for other standards, covering manufacturing, testing, reliability and maintenance. Our consultancy services will play a critical role in establishing our position in the renewables sector and this includes our work on high-profile projects for clients such as Statoil, Dong Energy and Siemens.
MAMMOET’S HEAVY LIFTERS Mammoet is one of the world’s leading manufacturers of heavy lift cranes. Its new generation of platform twin rig containerised (PTC) cranes can be used for super-heavy lifts of up to 3,200 tonnes in the construction of offshore installations and oil refineries. They can be shipped in standard-sized containers to enable lifting jobs to be performed anywhere in the world. Lloyd’s Register provided design appraisal during the design development of these new cranes and tailor-made software to help shorten the time required to analyse different crane configurations. Our inspectors across Europe carried out surveys during the build phase. Pieter Jacobs, Mammoet’s Director of Fabrication said: “Lloyd’s Register were very professional, with extensive knowledge and experience of heavy lift cranes. We know we can rely on their team of experts to make sure we design and build safe and reliable cranes.”
42 Lloyd’s Register Group Review 2011
GORGON UPSTREAM PROJECT WIN The Gorgon Project is a joint venture between the Australian subsidiaries of Chevron, ExxonMobil and Shell, to develop up to 40 trillion cubic feet (1,100 km3) of gas off the coast of Western Australia. The gas will be supplied to Barrow Island which has the unique status of both a class A nature reserve and an operating oil field. Lloyd’s Register Asia has won a five-year contract for the independent validation of the design, construction and installation of the project’s upstream facilities cementing our position as the number one provider of class and validation services in the region.
Adapting to a developing energy market As the energy industry evolves, we are investing heavily in research and training to continue to set new standards.
To strengthen our focus on providing smart solutions, we have grown our reliability based mechanical integrity (RBMI) software which meets all American Petroleum Institute’s (API) 580 recommended practice requirements for risk-based inspection, including inspection data Despite the prolonged harsh economic conditions in many markets, management, as well as the latest API standards 510 and 570 we are continuing to see growth in our compliance services, technical requirements. Recognition of its capability was highlighted by the services and wider business solutions as world consumption remains contract with Momentive Specialty Chemicals Inc. to continually robust in China and other non-OECD countries. measure and improve the reliability of their mechanical integrity programme worldwide. And to manage our delivery effectively we have spent the past 12 months developing strong, technically competent, locally Our strategy of developing software to enable clients to work empowered teams. For example, we formed a new operation that through the process of probabilistic safety analysis (PSA) has gained merges all of our UK-based risk consultancy operations into one momentum. PSA is an important element in the process to assess company – LR Scandpower Ltd. Its services include human engineering the safety of nuclear power plant. Our PSA software – RiskSpectrum and nuclear risk consultancy, and will provide industry with a one-stop – saw a number of software upgrades during the year and a new shop for turnkey expertise. fault tree analysis. Complete PSA models include all safety-related Our Aberdeen-based Integrity Services team has been restructured to target project expansion and support new clients within the European, Middle East and Africa region, while ensuring continued support to existing clients in the North Sea and in Asia and America. Teams across Asia have established a very strong business in inspection and verification services, especially for the Sino-India trade where Chinese manufacturers are providing significant elements of the supply chain for new power projects in India. Our approval by the Indian government to inspect and approve the design and build of pressure plants covered by the Indian Boiler Regulations, provides real value for many manufacturers in America, EMEA and in Asia. Our adherence to the integrity and quality of the service provided has gained considerable recognition. We have also continued to work on developing the products and services we provide to industry. For example, we developed an asset performance management (APM) framework, which helps form a roadmap to operational excellence and will support operating assets reaching the end of their economic lives.
systems in a plant, for all different operational modes, and from construction to decommissioning. This is a complex process and Scandpower has been the pioneer of this software.
The fact that working with Lloyd’s Register never permits any shortcuts… is what explains the long-standing degree of confidence and mutual respect shared between our companies. AR Raghavan, Managing Director, Vijay Tanks & Vessels Ltd
Lloyd’s Register Group Review 2011 43
BUSINESS REVIEW | ENERGY
Engaging with industry and sharing knowledge Training plays a central role in giving a workforce the skills it needs and it benefits business performance. Last year ModuSpec, an industry leader in rig inspection services, began running a series of technical training days for drilling personnel. Based on the overwhelming success of this initiative, the ModuSpec Academy was launched. We have worked with the Energy Institute (EI) and the UK Health & Safety Executive (HSE), to produce a report highlighting how organisations can better understand and manage the impact their employees have on safe and efficient operations. This is the first time a set of key performance indicators, supported by a transparent methodology aligned with HSE guidance, has been available to help companies in the oil, gas and process industries to manage the human aspects of safety more effectively. Photo courtesy of SBM Offshore
DEEP PANUKE FLOATS In April, the Deep Panuke Production Field Centre (PFC) left Abu Dhabi, following a three-year construction project, en route for Canada. The Deep Panuke offshore gas field is 250 kilometres southeast of Halifax, Nova Scotia in a water depth of 44 metres. The development project includes the PFC, subsea systems, export pipeline, support vessels and various other facilities. It can produce up to 300 million standard cubic feet of gas per day and accommodate up to 75 people. Lloyd’s Register North America has worked on the main contract with Encana Corporation, and with almost 200 vendor contracts around the world, covering everything from the main process plant to electrical switchgear to the 172-kilometre export pipeline and approximately 18 kilometres of infield flowlines. Project manager Mike Malone praised the work of the dozens of Lloyd’s Register surveyors who have been involved. “It has not been easy; no project of this size runs without some challenges. Lloyd’s Register’s global team of professionals has risen to all of these, and thanks to their dedication and determination the project was handed over to the commissioning and operations team in full compliance with the regulatory scheme.”
Over the past 12 months, our industry engagement programme has included: • participation in Kazakhstan’s Ministry of Oil and Gas Regional Petroleum Technology Conference and attending KIOGE where we presented two asset integrity papers • hosting a 90-member meeting of the UK Nuclear Industry Association’s (NIA) new-build working group • launching a series of papers on safety-case regimes at the Offshore Technology Conference in Houston • delivering a series of three-day training courses on American Society of Mechanical Engineers (ASME) Boiler and Pressure Vessel Code Section IX for clients located in Abu Dhabi, Dubai and Kuwait • sitting on, and steering, BSI and IEC committees, world-renowned technical committees such as ASME and leading CEOC’s energy and efficiency committee.
Without a solid foundation in safety and quality no project will be successful. We are delighted to be working with Lloyd’s Register… Third-party verification will help us to be sure that the project is delivered with the sort of ‘relentless predictability’ that both we, as a prospective licensee, demand, and that the regulators expect. Alan Cumming, Procurement Director, EDF Energy Nuclear New Build
44 Lloyd’s Register Group Review 2011
LOOKING AHEAD
PROJECT HIGHLIGHTS 2010/11
The energy industry is a long-term enterprise, and decisions made today have consequences for years to come.
Achieving the stamp of approval ISGEC Group supplies entire plant, process equipment, presses and boilers to the domestic Indian market and exports to over 70 countries. We have worked with the company for almost half a century providing third-party inspection services for code-stamp equipment. The Group’s Yamunanagar plant is working towards an ASME ‘N’ Stamp to fabricate critical nuclear power equipment. Acting as the Authorised Inspection Agency, LR Insurance, Inc. will help the client prepare a quality system for audit.
Lloyd’s Register’s strategy is geared towards growth in terms of global reach, new product development and safe supply chain optimisation. We will continue to develop our capability to provide expert advice across all areas of the energy mix for energy applications even in the most remote environments. In the oil and gas sector, exploration and production operations will move toward a safety-case regime placing responsibility on the operators. As a result operators will demand higher levels of integrity from their contractors on equipment, systems and personnel. Crew competence and specific training to reduce downtime and equipment failure, will be of critical importance. Manufacturers will have to review their equipment designs for functionality and failure, and make adjustments based on new requirements. As an independent third-party organisation, we understand these principles and will encourage stakeholders to work towards harmonisation of requirements and the global acceptance of all competently performed assessments. In the EU, increasing focus on emissions reductions will limit further expansion of fossil fuel-fired power plants and instead drive emission control technologies and alternative fuels. Our Energy team will do its part in helping industry to build a balanced, comprehensive and safe approach to energy security and protection of the environment. We will increase our product and service development to maintain our leading technical edge and the quality of our service delivery. The care and maintenance of ageing assets also requires specific skills and experience. We will see increased demand from both owners and operators relying on us for their support in this difficult task, bringing all of our technical expertise and industry understanding to bear. Lloyd’s Register will continue to have an important part to play as governments across the world look to industry to provide the energy our economy needs.
Pioneering deepwater competences We are providing competency assessment projects for Transocean’s entire deepwater fleet of 67 rigs located across the world. This service helps to drive the safety agenda with crews and recognition of the important role that human intervention plays when dealing with high-risk, capital-intensive plant and processes. Pipeline connections After 11 years and the construction of 210 kilometres of pipeline, the first flows of natural gas were delivered across the Mediterranean from Algeria to Europe. This was achieved with technical support from Lloyd’s Register Inspection Ltd (LRIL) to Medgaz SA, the company responsible for delivering the project, to help ensure the safe and responsible delivery of a project which will supply power generating plants. Brazilian Stars Our risk analysis project with Queiroz Galvao Oil & Gas involves work on their Star fleet of rigs. For the first phase of the project, ModuSpec is providing technical advice and support regarding critical rig systems. A team from Scandpower will then take over the second phase combining expertise in failure mode and effects analysis. Making waves We certified Ocean Power Technologies’ (OPT) PB150 B1 wave energy converting buoy to Lloyd’s Register’s Rules and Regulations for Mobile Offshore Units (1996). The OPT PB 150 B1 is a 150kW power buoy, located in the Orkney Island’s European Marine Energy Centre (EMEC) development – one of the most energy-rich marine environments in the world.
Lloyd’s Register Group Review 2011 45
BUSINESS REVIEW
M ANAGEMENT S YSTEMS LRQA Business Assurance turns assessment into a powerful management tool to improve and protect performance.
To support its commitment to the continual improvement of its business, processes and technology, Citrosuco has chosen LRQA Business Assurance for its ISO 9001 and HACCP certification. Sérgio Moretti, Operations Director of Citrosuco
The new certification scheme, FSSC 22000, is a major step forward in food safety. Cor Groenveld, LRQA Global Product Manager Food Services
80%
Of those questioned said they did not trust the food they buy. IBM Consumer Confidence Survey
BUSINESS REVIEW | MANAGEMENT SYSTEMS
I NDUSTRY OVERVIEW Management systems should allow organisations to learn from the past, manage the present and respond better to the future.
INDUSTRY ISSUES
FOOD SAFETY ISSUES
Investors, consumers and employees are waking up on a daily basis to media stories of food safety scares, supply chain concerns, high-profile product recalls and a market demand for increased organisational environmental transparency. These four issues are helping to drive a fundamental shift in the perception of the value and importance of management systems and independent assurance. Organisations are recognising the competitive advantage that independent assurance can deliver through increased brand reputation, continual improvement, reduced risk and greater market access. With independent research demonstrating that ‘ISO adopters have higher rates of corporate survival, sales and employment growth,’ the case for certification and verification is a compelling one. 01 THE RE-EMERGENCE OF QUALITY The most recent ISO Survey of Certifications showed that ISO 9001 has become a global benchmark, topping over 1 million certifications. Global sectors have also refocused their efforts on quality, with the AS 9100:2009 update helping to ensure that the aerospace industry remains at the forefront of quality management. These two facts alone illustrate the importance of robust quality management systems as a centrepiece for shareholder engagement and organisational reputation. 02 TURBULENCE WITHIN THE CLIMATE CHANGE ARENA The climate change arena remains turbulent with continued uncertainty regarding the future of the Kyoto Protocol initiatives Clean Development Mechanism (CDM) and Joint Implementation (JI) sparking the emergence of regional and domestic schemes. With the total value of the global carbon market at US$142 billion in 2011 according to the World Bank’s July 2011 report, the market eagerly awaits the outcome of the COP 17 talks being held in Durban in December 2011. 03 STANDARDS HARMONISATION AND AUDITOR COMPETENCY DRIVING FOOD SAFETY Through the Global Food Safety Initiative (GFSI), key stakeholders across the food supply chain are leading a drive towards increased harmonisation of standards, as well as an increased focus on the technical expertise of auditors. The GFSI comprises key stakeholders across the food supply chain.
48 Lloyd’s Register Group Review 2011
At the 2011 GFSI Conference, delegates selected ‘auditor competence’ as the most important issue for organisations. 1
6
2
5 3 4 1 Auditor competence – 19% 2 Harmonisation of recognised schemes – 18% 3 Integrated supply chain approach – 16% 4 Communication and global expansion – 15% 5 Driving common acceptance of GFSI schemes – 11% 6 Other – 21%
LOOKING AHEAD Influential organisations in climate change, supply chain, food and risk management are helping position management systems certification and verification firmly on the corporate and regulatory agenda. Alliances with organisations such as the Carbon Disclosure Project (CDP), the GFSI and the Federation of European Risk Management Association (FERMA) will deliver added value to clients through technical insight and enable certification bodies to extend their sphere of influence. Finally, the market is awaiting the planned revision of ISO 9001 currently scheduled for 2014/15. With industry stakeholders involved in the process, including several leading certification bodies, a fundamental requirement has to be that ISO 9001 should continue to lead organisational best practice.
MANAGEMENT SYSTEMS REVIEW Once viewed primarily as a tick in the box exercise, third-party certification is increasingly seen as evidence of stakeholder engagement, risk mitigation and management best practice.
Within today’s challenging business environment, organisations are recognising the competitive advantage that LRQA Business Assurance services can deliver. Mike James, Management Systems Director
Against the continuing backdrop of the threat of a double-dip recession and the ongoing financial instability in many of our key markets, there is optimism that the majority of developing countries have regained full capacity activity levels – a sentiment reflected in growth from our emerging markets, specifically South East Asia, India and China. Our established markets of Western Europe and America have continued to perform in line with expectations. Understandably, the earthquake and tsunami in Japan and the political turmoil in the Middle East and North Africa have contributed to a slowdown in trade and revenue in these markets. But this has been compensated by the overall regional performance and our commitment to growing the LRQA brand in these strategic markets. As we head towards 2012, LRQA is focused on developing an agile and sustainable business thanks to the continued demand from existing and new clients alike for integrated management systems with specific strong performance from ISO 14001, OHSAS 18001 and food safety, including the Food Safety System Certification 22000 scheme (FSSC 22000) and ISO 22000. We continue to differentiate ourselves through LRQA Business Assurance which helps companies manage their systems and risks to both improve and protect the current and future performance of their organisation. LRQA Business Assurance is constantly evolving to meet new needs and is based on the premise that the intrinsic value of the assessment process can help organisations by bringing the management systems closer to the operation of the core business.
LRQA’s technical expertise, integrity, global reach and depth of knowledge combined with our ability to innovate, ensures we continue to ‘get into the minds of the people that matter’ and places us in a strong position for future growth. Food supply chain Organisations and consumers alike need to know that their food supply chain is safe, secure and sustainable. LRQA works with the world’s top brands within the food sector to help optimise their management systems. Through our technical expertise, and sector-specific insight, we help them to protect their brand reputation and their consumers by addressing the many risks, up and down the food supply chain. A whole new approach to risk management and quality assurance is contained within the new FSSC 22000. Cor Groenveld, LRQA Global Product Manager Food Services and Chairman of the FSSC 22000 Committee, said “Working together with our key global clients, LRQA is at the forefront of the shift within the food sector away from the ‘tick box approach’ towards FSSC 22000 which offers a more holistic assessment methodology, assessing and monitoring the entire network of interacting processes in the supply chain.” Effective management systems and independent certification are the two key drivers of an effective food safety culture, and this benefits all concerned. This new approach does not just mean safer food for consumers. It will also lead to business and performance improvements, reduced risk, better protection for corporate reputations and lower costs.
Lloyd’s Register Group Review 2011 49
BUSINESS REVIEW | MANAGEMENT SYSTEMS
MANAGEMENT SYSTEMS FOR FOOD SAFETY AT CITROSUCO Citrosuco, one of the largest orange juice producers in the world, has worked with LRQA since 2001 to manage its food safety practices and help ensure the organisation provides its customers with premium, quality product each and every time. To help Citrosuco maximise the value it provides to its customers and to deliver additional competitive advantage, the company is currently working with LRQA to achieve FSSC 22000 certification. “ To support its commitment to the continual improvement of its business, processes and technology, Citrosuco has chosen LRQA Business Assurance for its ISO 9001 and HACCP certification.” Sérgio Moretti, Operations Director of Citrosuco
We are also working closely with some of the world’s leading organisations to deliver customised audit programmes to their global network of locations, often encompassing their suppliers. This service represents a significant percentage of our annual revenue and we anticipate demand continuing as we move into 2012. Climate change Alongside LRQA’s Clean Development Mechanism (CDM) project services, we continue to see increased revenue from our global suite of climate change services including verification of emissions data against the mandatory EU Emissions Trading Scheme (EU ETS) and the voluntary standard ISO 14064. Both of these products have contributed heavily to LRQA’s strong performance during the period and we believe that it is the LRQA Business Assurance approach that is delivering competitive advantage for our clients in this area.
Across our Asia region, national governments continue to establish domestic schemes requiring third-party verification and LRQA, seen as a thought leader, is often invited as an early participant to inform pilot activities and scheme development. A pilot programme for product carbon footprinting in Japan is just one example. We have also been successful in the development and delivery of new services for these schemes including: Korea’s greenhouse gas (GHG) and Energy Target Management System, which is expected to give way to a national emissions trading scheme (ETS) in 2015; and the Certified Emissions Measurement and Reduction Scheme (CEMARS) in Australia, in response to the introduction of a carbon tax in the country and the proposed national ETS also estimated for 2015.
Energy June saw the launch of the new international energy management system standard (EnMS), ISO 50001. It will provide public and The EU ETS continues to be the cornerstone of international government private sector organisations with management strategies to increase action on climate change and provides the world’s greatest source energy efficiency, reduce costs and improve energy performance. of demand for carbon trade. With phase III commencing in 2013 There is a clear migration process to ISO 50001 certification from additional gases and sectors are already confirmed to be included both EN 16001 (the dominant regional EnMS) and ISO 14001, and pressures from the EU continue for the inclusion of maritime the global environmental management system (EMS) standard as transport. Despite the absence of certainty regarding the future of well as integration capability with ISO 9001 and OHSAS 18001. the Kyoto Protocol, these developments coupled with the discussions It is this integration and migration ability that makes certification being held between the EU and other countries for bilateral to ISO 50001 such a compelling proposition for organisations – agreements, ensure that the EU ETS will continue to be a key service irrespective of their size or geographical location. for us in future years. In 2010, we verified a further 150 million Training tonnes of carbon under the scheme, bringing our year-on-year total LRQA training ensures that our clients get the best from their to approximately 690 million tonnes. management systems. We also provide bespoke training services to In North America, Group member Ryerson, Master and Associates, drive cultural understanding, primarily across the food safety supply Inc., was successfully rebranded in June 2011 to LRQA Americas chain to develop employee engagement and understanding. Sustainability (LRQA AS). LRQA recognises the key strategic importance of having a presence in the American climate change We invest in our people to ensure that our teams across the world arena and we are in the process of developing new skills and offers continue to lead the field with their technical expertise and breadth to meet market requirements. of knowledge.
50 Lloyd’s Register Group Review 2011
LOOKING AHEAD
PROJECT HIGHLIGHTS FOR 2010/11
LRQA continues to work closely with the International Office for Standardisation (ISO) and our relationship with them ensures that we are well equipped to deliver some of the 1,100 new ISO standards that are published every year.
• We certified Carrefour’s Belgian headquarters to the latest international standard for food safety in a testament to the emphasis that global retailers are placing on driving food safety throughout their supply chains. The award, which included audits of the company’s central offices in Brussels as well as two hypermarkets in Belgium, makes Carrefour one of the first international retailers to gain ISO 22000 certification.
Our client retention and account management is among the best in the industry. Our technical expertise and ability to deliver services spanning organisational requirements means that clients can rely on us to meet their immediate and future demands. With client representation on our technical committees, we have the ability to understand their requirements so as to meet their needs and those of the market to ensure continued growth for LRQA both today and going forward.
• LRQA was accredited to deliver FSSC 22000 – one of the first organisations to receive United Kingdom Accreditation Services (UKAS) approval. • In partnership with the British Council we introduced ‘E-idea’ in Asia (branded as The Big Green Idea in Australia). This is a unique initiative designed to award funding to new projects that mitigate the effects of climate change (see page 18). • LRQA formed a strategic partnership with the Carbon Disclosure Project and worked closely with it to produce a verification white paper, launched in July.
VERIFYING REPSOL’S GHG EMISSIONS TO ISO 14064 Repsol YPF, the world’s 15th largest petroleum refining company, sees LRQA Business Assurance as an essential element of an effective emissions reduction plan; helping the company to manage climate change challenges, systems and risks to improve and protect its current and future environmental performance. As a participant in the EU ETS, Repsol has a requirement for its greenhouse gas (GHG) emissions to be monitored, reported and verified. However, with operations in a number of countries outside Europe, Repsol’s objective is to be able to adopt common procedures irrespective of location. Verification to ISO 14064 with LRQA provides transparent, third-party evidence that GHG data is accurate and reliable. This, in turn, provides Repsol with a high level of credibility on sustainability issues. It also enhances its brand and reputation with investors, who regard issues such as energy efficiency as a proxy for efficient management. Another key driver for independent verification for Repsol is that credible and transparent data is also necessary for independent third-party assessments. Repsol submits data to the Carbon Disclosure Project (CDP) and has been included in the selective Climate Disclosure Leadership Index for communications and transparency regarding climate change. Jamie MacKinnon manages Repsol’s Carbon Management Unit. He says, “LRQA’s work goes beyond the requirements of the standard; their assessors have helped us to identify new ways to achieve emissions reduction. So it’s not just about accurate reporting; it’s about continuous improvement in partnership with an organisation that has a deep understanding of our business.”
Lloyd’s Register Group Review 2011 51
BUSINESS REVIEW | AROUND THE WORLD
AROUND THE WORLD CHIEF OPERATING OFFICER
Richard Petrie Chief Operating Officer
Operating in 245 locations and with some 7,600 employees, the Lloyd’s Register Group’s learning and experience is both local, international and global. In the following pages we review last year’s highlights and key activities in the each of our three regions of Asia; Europe, Middle East and Africa (EMEA); and the Americas. As we go forward we will use our learning and experience to maximise our responsiveness to clients to meet their needs fully. Our services will continue to be focused locally and draw on the scale and depth in our expertise and insight – whether in safety,
environmental, technological, market or geographic know-how that our clients rightfully expect from our organisation. We will aim to engage with clients to drive innovation and service delivery to where need is greatest. We will seek to be flexible and responsive as we drive to engage more fully with clients in all the different geographies where we serve. In Lloyd’s Register we are proud of our tradition of service to critical infrastructure industries and our mission to protect life. We also know that in today’s demanding environments our clients need reliable, high-quality, cost-effective and timely services. We will aim to continue our tradition of service while increasing our service responsiveness to these demands in all three regions.
ONEASIA2015 – A VISION FOR THE FUTURE Lloyd’s Register Asia launched its OneAsia2015 vision in September 2011. It is a comprehensive review of the Group strategy that looks at how this strategy can translate into a vision for the Asia-Pacific region, how it will be delivered and, most importantly what it means for our clients and people. This vision will be used as a framework and focal point for growing and expanding the business through to 2015, in line with the Group’s global strategic aspirations. The vision was launched by John Rowley, Director Lloyd’s Register Asia, during a week of engaging events, meetings and workshops held in Hong Kong for the 90 senior Asia Group managers. OneAsia2015 will now be rolled out across Asia’s five geographical operating areas. The vision sets start and end points – from 2011 until 2015 – in terms of business growth, engagement, service delivery and client management and also asks important questions about how Lloyd’s Register can continue to deliver its public benefit mandate while still continuing to grow as a modern, efficient business. The vision will be reviewed and amended on a quarterly basis as business goals and geographical priorities change, but the idea of setting a roadmap to business growth and new market expansion will remain consistent.
52 Lloyd’s Register Group Review 2011
AMERICAS Revenue by business 2010/11
Revenue by country 2010/11
1
5
1
4
3 3
2 1 Marine – 42% 2 LRQA – 29% 3 Energy – 29%
2 1 USA – 55% 2 Canada – 21% 3 Other Latin America – 11% 4 Brazil – 8% 5 Mexico – 5%
Paul Huber President Lloyd’s Register Americas, Inc.
The growth of our business in Brazil is currently the key strategic focus in the Americas, specifically with regard to our global FOI initiative but important for all of our products and services. The diversity of our business is also a key issue; through various acquisitions we are developing our cross-business stream capabilities to increase synergies and identify joint opportunities among all our businesses. The Macondo well incident has significant and far-reaching impact on the Group’s business in the Gulf of Mexico. The new regulatory environment effectively highlights the value of the Group’s products available to the upstream sector. Statutory legislation now covers hazard identification and risk management, recognition of the design case for well barriers, assurance in the manufacturing process represented by independent third-party certification and the necessity for a formalised integrity management programme. There are reference standards and a recognised process for compliance. These raise opportunities for both consultative and compliance-based services, and existing value drivers associated with the Group such as technical integrity, independence and recognised experience and reputation, position us favourably. The downstream market in the US is in recovery mode following the 2008/09 economic recession. The rise in the oil price has been partially offset by a decrease in natural gas prices, partnerships, and long-term contracts. Downstream operators are being very careful how they allocate their capital spending. Uncertainty in the fiscal policies of the current administration has led to continued investment in Asia and to further delays in de-bottlenecking existing process and new construction. We are positioning our services in the context of an overall asset management programme and conveying the value we can deliver given our overall capabilities.
In the Americas the Marine business reflected the global trends. Certain marine markets – most notably bulk and tankers – are suffering under poor earning conditions and fleet expansion is anticipated to be conservative in the coming months; we are focused on consolidating our services and maximising opportunities through better understanding of our clients’ needs and matching our full service portfolio to create bespoke solutions. Container and passenger ship markets remain relatively buoyant and efforts continue in the areas of risk, sustainability and the environment to match our clients’ own developments in these key areas. Across the Americas Management Systems business, we continue to focus on helping our clients improve their business performance and reduce their risks through Business Assurance. We have targeted growth in key business sectors, including aerospace and food, and new and emerging market opportunities, such as sustainability, social responsibility and energy efficiency. As a result, the business has sustained healthy growth with a 15% increase year on year, driven principally from new work in the US. Following the launch of AS 9100 Revision C, the aerospace sector is preparing for improvements to their quality management practices that incorporate stronger consideration for operational effectiveness and globalisation of their supply chains. All our aerospace assessors have been trained to deliver the standard and are able to help our clients identify opportunities for improvement and risk management as they transition to the new requirement. Within the last year LRQA has experienced wide-scale adoption across the Americas of the food safety management system standard FSSC 22000, targeted specifically at the food manufacturing industry. Our involvement in the standard’s development and in helping to ensure its industry-wide acceptance via the Global Food Safety Initiative (GFSI) have offered clients tremendous insight into best practices in international food safety management and modern supply chain management. As FSSC 22000 expands into food packaging and animal food production, we anticipate continuing growth within the sector as food companies continue to keep food safety among their key boardroom priorities.
Lloyd’s Register Group Review 2011 53
BUSINESS REVIEW | AROUND THE WORLD
ASIA Revenue by business 2010/11
Revenue by area 2010/11
4 1
5
1
4 3 3
2 2 1 Marine – 62% 2 Energy – 19% 3 LRQA – 16% 4 Transportation – 3%
1 North East Asia – 40% 2 Greater China – 34% 3 South East Asia – 12% 4 Australasia – 7% 5 South West Asia – 7%
John Rowley Director Lloyd’s Register Asia
The Asia-Pacific region has had another very strong year, growing revenue 13% over the previous year, with all four business groups contributing positively to this performance. In order to deliver this increased workload and continue expanding into the future, our employee headcount has sailed well past 2,000.
Our Transportation business in China, operated as a joint venture with China Classification Society, continues to work in safety projects with many of the new metro and subway lines opening in China and is now also starting to transfer the knowledge gained from the Taiwan high-speed rail line to assist with China’s rapidly expanding high-speed rail network. Our LRQA China business continues to grow its climate change certification business, and has invested substantially in entering the food manufacturing sector.
In addition, we have finalised the organisation of the region into five distinct operating areas – North East Asia, Greater China, South East Asia, Australasia and South West Asia – to ensure we have economies of scale and the right technical service capacity in each part of the region to support our clients’ needs.
In South East Asia, work has begun to implement our Global Technology Centre investment in Singapore, which will be a cornerstone of Lloyd’s Register’s thought leadership and technical innovation into the future. In addition, we have strengthened our leadership in both Malaysia and Singapore. In terms of growth, we have seen especially strong performances from our Indonesian and Vietnamese Energy businesses.
Our North East Asia area, comprising Korea and Japan, remains our largest and had a good year. Our Marine business in Korea benefited from significant new orders in 2010 to remain in a strong position, and continues to support the trends of the shipbuilders to focus more on environmental designs and the offshore energy market. Our largest business in Japan, LRQA, suffered challenges as a result of the devastating tsunami and Fukushima power plant disaster and the resultant impact on Japanese manufacturing. The leadership shown by our Japanese management, and the resilience of our Japanese staff during that crisis was remarkable. During this difficult time, Lloyd’s Register continued to service our clients and today we continue to provide support to the nuclear industry, as well as Japanese critical supply chains, and have recently made a substantial donation to the disaster recovery efforts. In Greater China our businesses have continued to go from strength to strength, with combined growth of over 30%. New shipbuilding orders in 2010 surpassed 250 ships which, together with competitive gains, have kept our Chinese Marine business extremely busy, although we are preparing for a possible slowdown in the shipbuilding market over the coming two to three years. We have welcomed new leadership to our Energy and LRQA businesses, who have continued the positive growth trend of their predecessors.
54 Lloyd’s Register Group Review 2011
Our South West Asia area has continued to be one of the fastest growing parts of Asia, led by the Energy business in India. We have expanded rapidly to a network of 20 offices and over 250 employees, operating in close proximity to our key clients, such that we are able to supply them with efficient, effective responses to their needs. The Indian power industry in particular continues to be a key focus, and our technical capabilities in this area are highly sought after. In Australasia we have taken steps to prepare for accelerated future growth, especially in our Energy risk consultancy and offshore businesses, and the LRQA business. We see significant potential in Australia, particularly in assisting our global clients with onshore and offshore projects in Western Australia, and we have strengthened our management and technical capacity to ensure we continue to meet our clients’ expectations as they invest in this market. In summary, 2010/11 has been a satisfying and positive year. After the global downturn in 2009, we took steps to consolidate the business and position it for future growth, and we have delivered on our projections. The future in Asia looks bright.
EUROPE, MIDDLE EAST & AFRICA Revenue by business 2010/11 4
Revenue by area 2010/11
1
7
8 1
6 5
3
2
Greece & East M
4 2 1 Marine – 44% 2 Energy – 27% 3 LRQA – 21% 4 Transportation – 8%
Paul Graaf Director Lloyd’s Register EMEA
The EMEA region has seized the challenges of the credit crunch head on by intensifying performance highlights and the quality of our services, thus being able to turn them into new opportunities. In the Europe, Middle East and Africa region we have 3,800 employees spread across 47 countries that cover a wide range of cultures and economies and stretch geographically from Cuba to Kazakhstan. Income fell by 2% year on year, as the credit crunch in Dubai turned into a much larger debt crisis in southern Europe, yet demand for our services in these countries remains strong. The second half of the year saw the ‘Arab Spring’ the uprising in a number of Middle Eastern countries, and while this hit our income and opportunities, it also produced an extraordinary example of teamwork to safely evacuate our people from Libya (see page 23). Our Marine business felt the pressures of the global economic slowdown, with the Baltic Dry Index ending the year down 20% as fears that growth in Asia will slow. Freight rates continue to be under pressure on the back of declining demand. However, Greek owners have returned to shipbuilders for new ships, driven by attractive pricing, generally in growth sectors such as LNG ships. The impact of the ‘Arab Spring’ and the tightening of sanctions on Iran drove the oil price over US$100 a barrel for the second half of the year. However, a surprise tax rise by the UK government and an industry-wide shortage of skilled staff constrained the number of new opportunities. Looking forward, once the Middle East stabilises and reconstruction work begins, our services will be among the first required and will provide us with opportunities. In the nuclear power sector, the Fukushima incident in Japan delayed the opportunities for our Lloyd’s Register Apave joint venture as new-build programmes around Europe were delayed. However it generated opportunities for risk assessments on existing installations.
3 1 UK & Eire – 27% 2 Western Europe – 20% 3 Greece & East Med – 13% 4 Central Europe – 12% 5 Southern Europe – 9% 6 ME & Africa – 9% 7 Nordic Area – 8% 8 Lloyd’s Register ODS – 2%
Management Systems continues to grow as a result of seizing opportunities to expand into new sectors, gaining the advantage of being first into market. This was highlighted when we secured a significant project for the Dutch government due to our capabilities and ability to react quickly. Overall growth of 4%, in the context of cost-cutting by competitors and rising pressure on clients’ discretional spend, is testament to the value of our service and the quality of our people. Transportation has faced a challenging year as governments in the UK and the Netherlands introduced austerity measures to curb budget deficits. As a result a number of key projects have been delayed, with the remainder heavily focused on value for money. However our strong technical skills and close client relationships helped us seize alternative opportunities in the Continental European markets. New opportunities for our leading asset management monitoring platform (Gotcha monitoring system) have been secured, expanding our presence and strengthening our reputation in the EMEA region. Support services played a vital part. The introduction of an area general management structure in the region, co-ordinating the use of our resources locally, was instrumental in the evacuation of our employees from Libya. The finance teams lead a reduction of our bad debts, which in the context of the debt crisis in Europe, was an excellent achievement. The safety teams drove an increase in awareness and culture, leading to a 50% reduction of the accident frequency rate year on year and improved accident reporting. HR continued to deliver leadership assessment and development programmes to develop our leadership capability. In addition, various initiatives have been taken to strengthen our attraction to potential employees, recruitment and retention ability.
Lloyd’s Register Group Review 2011 55
FINANCE AND MANAGEMENT | CHIEF FINANCIAL OFFICER’S REPORT
C HIEF FINANCIAL OFFICER’S REPORT The Group has shown encouraging top-line growth, however tough market conditions have adversely impacted margins during the year.
NORMALISED OPERATING SURPLUS £m
INCOME £m
820
806
594 425
94
855
497
05/06 06/07 07/08 08/09 09/10 10/11
69 57
57
75
52
05/06 06/07 07/08 08/09 09/10 10/11
Operating surplus Our reported operating surplus, at £40 million is £77 million down on the prior year. This was primarily due to the impact of foreign In this review I am presenting data for the last six years. The data for exchange losses this year (compared with foreign exchange gains income, operating surplus and headcount are all related to continuing in the prior year), and the exceptional gain arising from changes to operations only. the UK pension scheme in the prior year. The Group has continued to effectively manage the underlying cost base of the business while Income Total Group income for the year was £855 million, an increase of 6% continuing to invest in new technology and in significant upgrades on the previous year. The continuing weakness of sterling accounted to the Group’s IT infrastructure. for 1% of the increase, leaving underlying growth at 5%, including The six-year normalised operating surplus trend chart shows the full-year results for Scandpower (2010 included six months only). operating surplus before charitable donations, foreign exchange Given the tough trading conditions, it is pleasing to report that all gains and losses, and pension costs. This basis most appropriately sectors of the business performed well. reflects the underlying profitability of the business. Although I would like to comment on selected key numbers from the Group’s annual accounts for the year ending June 30, 2011.
The anticipated weakness in our Marine business did not materialise, largely due to higher than expected activity levels of new construction projects in Asia. The Energy business posted another year of strong income growth, boosted by full-year results from Scandpower which was acquired in 2009. Energy now accounts for over 30% of the Lloyd’s Register Group income. The Group has continued to benefit from maintaining a diversified portfolio of businesses. Over the six-year period annual income growth has averaged 15%.
56 Lloyd’s Register Group Review 2011
profitability during the year has decreased slightly from the prior year, we are pleased to be able to report that the average annual growth in operating surplus on this basis over the last six years was 6%. This has been achieved over a period in which we have experienced high levels of volatility in the global financial markets, and a significant slowing up of growth in the world’s economies.
INCOME PER EMPLOYEE £000
HEADCOUNT
OPERATING CASH FLOW £m 161
6,976
7,398 7,549 7,555
5,937 5,214
102
111 82
84
107
113
85
76 34 -5
-72 05/06 06/07 07/08 08/09 09/10 10/11
05/06 06/07 07/08 08/09 09/10 10/11
05/06 06/07 07/08 08/09 09/10 10/11
Surplus before tax The Group reported a healthy surplus before tax of £54 million for the year and is stated net of a further £10 million donation to The Lloyd’s Register Educational Trust, representing one of the ways in which the Group fulfils its charitable objectives. The Group’s surplus before tax has also benefited from another year of strong investment returns. Given the turmoil in the world’s financial markets it is pleasing to be able to report that the net investment returns for the year were £21.5 million. Although this is down on the £31.5 million reported in 2009/10, the prior year had benefited from some significant gains realised as a result of a restructuring of the investment portfolio. The Group has addressed the funding shortfall on the main defined benefit pension scheme in the UK by transferring £100 million of investments from the Lloyd’s Register portfolio into an escrow account. Subject to the results of future pension scheme valuations, amounts may be paid out of the escrow account to make good the deficit in future periods. Operating cash flow The Group posted another year of significant positive cash flows. The operating cash flow for the year was £76 million and was positive for the third year running. Further improvements in working capital levels were realised during the year which enabled the Group to increase its net cash balances during the year, after incurring a further £22 million on deferred consideration for acquisitions made in prior years and after the repayment of a €43 million loan which had been used to hedge the Group’s exposure to euro denominated investments in certain subsidiary net asset positions.
Headcount The average headcount for 2010/11 was approximately 7,600 employees, slightly higher than the previous year. The average headcount growth over the previous six years has been 8%. When compared to the 15% average increase in income this shows a significant increase in the productivity of the Group. The relatively small increase in average headcount combined with the increase in revenue has resulted in annual income per employee increasing from £107,000 in 2009/10 to £113,000 for 2010/11. Conclusion A return to top-line growth is clearly a very positive result given the challenging market conditions prevalent throughout the year. It is also pleasing to report that the Group continues to maintain healthy margins which underpin our ability to continue to add value to society. The outlook is for the current challenging market conditions faced by our businesses to continue for the foreseeable future, however we continue to strengthen the Group balance sheet and this provides an excellent platform for achieving both organic and inorganic growth in the future.
Alastair Marsh Chief Financial Officer
Lloyd’s Register Group Review 2011 57
FINANCE AND MANAGEMENT | BOARD OF TRUSTEES AND EXECUTIVE LEADERSHIP TEAM
BOARD OF TRUSTEES AND EXECUTIVE LEADERSHIP TEAM The Board of Trustees and the Executive Leadership Team work together to govern and direct the activities of the Group.
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BOARD OF TRUSTEES Lloyd’s Register, the parent society in the Lloyd’s Register Group, is governed by a small Board of Trustees, chaired by Thomas Thune Andersen. The members of this Board are elected by the members of Lloyd’s Register’s General Committee.
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1 Thomas Thune Andersen Chairman of the Board of Trustees; Chairman, Lloyd’s Register; Chairman of DeepOcean; Board Director of Scottish and Southern Energy, Petrofac and VKR Holdings 2 John D Chandris Senior Trustee, Chairman of The Chandris Group 3 Mrs Christine Dandridge Non-Executive Director, Managing Agency Partners and RFIB Group 4 Ron Henderson Chairman, Lloyd’s Register Audit Committee 5 Jan Kopernicki Former Vice President Shipping, Shell International Trading and Shipping Company 6 Michael F Lykiardopulo Managing Director, Lykiardopulo & Co Ltd 7 Lambros Varnavides Chairman, Lloyd’s Register Remuneration Committee Managing Director and Global Head of Shipping, The Royal Bank of Scotland
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EXECUTIVE LEADERSHIP TEAM
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The Chief Executive Officer, Richard Sadler, is responsible to the Board of Trustees for the overall performance of the Group, both financial and non-financial. In this he is supported by members of the Executive Leadership Team. 8 Richard Sadler Chief Executive Officer 9 Alastair Marsh Chief Financial Officer 10 Richard Petrie Chief Operating Officer
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11 Nicholas Bacon Interim HR Director 12 Tom Boardley Marine Director 13 Mike James Management Systems Director 14 Paul Huber President Lloyd’s Register Americas and Interim Energy Director
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15 John Stansfeld Transportation Director 16 Paul Graaf Director of Lloyd’s Register EMEA 17 John Rowley Director of Lloyd’s Register Asia 18 Estelle Clark Group Business Assurance Director
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19 Jim Harrison Group Legal Director 20 Atul Hindocha Group IS Director 21 Keith Povey Group Corporate Secretary 22 Richard Rowe Group Safety Director 23 Mark Stokes Group Communications Director
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24 John Wilford Group Corporate Development Director 25 Weijie Gao China Operations Chairman
Lloyd’s Register Group Review 2011 59
GLOSSARY
GLOSSARY A more detailed explanation of some of the acronyms and terms in this review. A American Society of Mechanical Engineers (ASME) The ASME Boiler and Pressure Vessel Code is the leading internationally accepted construction code defining the requirements for the design, manufacture, inspection and testing of many types of pressure vessels and nuclear power plant components. AS 9100 A widely adopted and standardised quality management system which enables companies to supply to the aerospace industry. This standard is now a contractual requirement for many of the world’s largest aerospace manufacturers. B Baltic Dry Index (BDI) A number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index tracks worldwide international shipping prices of various dry bulk cargoes. C Certification The process of evaluation that results in a written statement, usually by a third party, that a system or component complies with its specified requirements and is acceptable for operational use. Classed fleet Vessels built and maintained to Lloyd’s Register standards. Ships built to other class society standards may be transferred to our class provided our standards can be met. Maintenance of class is subject to surveys. Classification The development, implementation and maintenance of standards (Rules) for the design, construction and operation of ships and offshore units. Compliance with these standards ensures assignment and maintenance of class. Clean Development Mechanism (CDM) A greenhouse gas emissions reduction project in a developing country where the investor is from an industrialised country. Both countries must have ratified the Kyoto Protocol.
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COP 17 The 17th Conference of the Parties (COP17) to the United Nations Framework Convention on Climate Change (UNFCCC) will be held in Durban, South Africa from November 28 to December 9, 2011. Since the UNFCCC entered into force in 1995, the COP have been held annually to assess progress in dealing with climate change. Successive decisions taken by the COP make up a detailed set of rules for practical and effective implementation of the convention. Corporate social responsibility (CSR) LRQA defines CSR as how companies manage their business activities taking account of economic, social and environmental impacts such that they: deliver sustainability; behave ethically; produce an overall positive impact on society; and address stakeholder expectations. D Deadweight tonnes (dwt) The maximum weight of cargo and stores that a ship can carry. E Emissions trading schemes Emissions trading (also known as cap and trade) is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. The largest scheme is the EU Emissions Trading Scheme (EU ETS), known also as the EU Emissions Trading System, which requires installations to monitor and report their carbon dioxide emissions and enables them to trade carbon dioxide emission ‘credits’. Energy Efficiency Design Index (EEDI) See page 28. F Flag state A sea-going vessel is subject to the maritime regulations of its country of registration, or flag state, in respect of manning scales, safety standards and consular representation abroad. Floating offshore installation (FOI) Relates to any kind of floating installation regardless of its capability.
Floating production, storage and offloading vessel (FPSO) Floating production unit which can process and store oil or gas as it is extracted from the seabed before delivering to export. Floating storage and offloading unit (FSO) Floating production unit which stores oil or gas as it is extracted from the seabed before delivering to export. FSSC 22000 FSSC 22000 is the first global food safety management certification scheme specifically targeted for the certification of manufacturing and processing of food ingredients and food products. The FSSC scheme is based on ISO 22000 (requirements for food safety management systems) and PAS 220 (requirements for prerequisite programmes for food manufacturing). G Gross tons (gt) Gross tonnage is a function of the moulded volume of all enclosed spaces of the ship. It forms the basis on which manning rules and safety regulations are applied, and registration fees determined. H Hazard identification (HAZID) At the conceptual or detailed design stage, a HAZID study identifies potential hazards and threats which helps lead to a safer and more cost-effective design. Human factors Human factors involves the study of all aspects of the way humans relate to the world around them, with the aim of improving operational performance, safety, through-life costs and/or adoption through improvement in the experience of the end user. I Independent safety assessor (ISA) ISAs objectively assess the safety aspects ofa process, system or organisation. From the evidence gathered in the assessment the ISA forms a judgement on whether the safety requirements have been met.
International Association of Classification Societies (IACS) A membership organisation that contributes to maritime safety and regulation through technical support, compliance verification and research and development. More than 90% of the world’s cargo carrying tonnage is covered by the classification rules and standards set by the 13 member societies of IACS.
M Management system The organisation’s business system that focuses on the achievement of results, in relation to performance improvement and compliance with legislation, that consists of defined organisational responsibilities, practices, procedures, processes and resources for developing, implementing and achieving a company’s policies.
International Maritime Organization (IMO) The specialised agency of the United Nations with responsibility for safety and security at sea and the prevention of marine pollution from ships. Established in 1948, IMO first met in 1959 and is the only United Nations agency with its headquarters in London.
N Notified body A third party appointed by EU member states to perform formal audits of products and quality systems for many of the EU’s directives. A notified body is appointed to a particular directive.
ISO 9001 The international management systems standard concerned with quality management – what an organisation does to ensure customer satisfaction by meeting customer needs and expectations and applicable regulatory requirements, and continually to improve its quality performance. ISO 14000 A family of international management standards concerned with environmental management – what an organisation does to identify and manage significant environmental effects caused by its activities, products and services, comply with relevant legislation and continually to improve its environmental performance. ISO 14064 An international standard against which greenhouse gas (GHG) emissions reports are voluntarily verified. In parallel with the emergence of regulated or mandatory schemes relating to monitoring, reporting and verification of GHG, organisations are now increasingly wishing to monitor and report their emissions voluntarily. For this purpose, ISO 14064 has been developed. L Liquefied natural gas (LNG) Natural gas changes to a liquid at -163C, creating LNG. When liquefied, the gas is reduced to 1/600th of its original volume making it economic to transport in specially designed LNG ships.
O OECD The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade.
R Risk-based approach A basis for making decisions by identifying the greatest risks and prioritising efforts to eliminate or control them. Risk management This term is used in many business sectors including finance and insurance. Our concern is with risk management solutions in relation to technical, safety and commercial aspects of our clients’ assets – ships, oil rigs, industrial plant, railways (including rolling stock and related infrastructure). Risk management supports better decision-making by contributing to a greater understanding and control of risks and their impacts. It is as much about identifying opportunities as it is about avoiding losses. Ropax A roll on/roll off ferry with passenger accommodation. Rules See classification above.
OHSAS 18001 An international occupational health and safety (OH&S) management system specification that gives requirements to enable an organisation to control its OH&S risks, improve its performance and comply with relevant legislation. It has been developed to be compatible with the ISO 9001 and ISO 14001 standards.
S Safe return to port IMO’s requirement that passenger ships should be designed with increased survivability, so that in the event of a casualty, people can stay safely on board as the ship proceeds to port. This is a reflection of the increasing size of passenger ships with resulting increasing time taken for evacuations.
P BSI Publicly Available Specification 55 (PAS 55) A consistent framework for asset management systems. It was developed as a quality benchmark for management practices in asset-intensive industries such as power, oil and gas, and transportation.
Safety case In general terms, a safety case is a formal explanation, regularly updated, of methods adopted to reduce risks to a level that is as low as reasonably practicable.
Q Q-Flex and Q-Max Q-Flex and Q-Max are membrane type liquefied natural gas carriers. They are equipped with an onboard re-liquefaction system to handle the boil-off gas, liquefy it and return the LNG to the cargo tanks. The Q-Max are the largest LNG carriers with a capacity of 266,000 cubic metres, equal to 161,994,000 cubic metres of natural gas. The first Q-Max ship, the Mozah was delivered in 2008 and it is classed by Lloyd’s Register.
Scantlings In shipbuilding, the scantling refers to the collective dimensions of the various parts, particularly the framing and structural supports. The word is most often used in the plural to describe how much structural strength in the form of girders, I-beams, etc is in a given section.
Lloyd’s Register Group Review 2011 61
Lloyd’s Register EMEA
Lloyd’s Register Asia
Lloyd’s Register Americas, Inc.
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