Lloyd's Register Group Review 2010

Lloyd’s Register Asia

Lloyd’s Register Americas, Inc.

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Lloyd’s Register – Group Review 2010

Lloyd’s Register EMEA

Group Review 2010

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Celebrating 250 years of service

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.

Contents The Group in brief 250 years of service Chairman’s statement Chief Executive’s review Serving the community The Lloyd’s Register Educational Trust Focus on employees Marine Transportation Energy Management Systems Around the world Group Finance Director’s report Board of Trustees and Executive Leadership Team Glossary

02 04 10 12 15 16 18 20 28 34 42 48 52 54 56

I Independent safety assessor (ISA) ISAs objectively assess the safety aspects of a 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 10 member societies and one associate of IACS. 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.

Interoperability The ability of a system or a product to work with other systems or products without special effort.

In the European rail sector, this is made possible by the implementation of standards under the EC interoperability directives.

International Railway Industry Standard (IRIS) The IRIS is based on the ISO 9001 quality management standard with specific characteristics for the rail industry.

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 28000 The international standard that specifies the requirements for a security management system, including those aspects critical to an organisation’s management of security risk within its supply chain.

L Liquefied natural gas (LNG) Cooling natural gas to -163˚C, the temperature at which it changes from gas to liquid, creates LNG. When liquefied, the gas is reduced to 1/600th of its original volume making it economic to transport in specially designed LNG ships.

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.

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.

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.

Rules See classification above.

S 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.

O 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.

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.

Lloyd’s Register Group Review 2010 57

I ntroduction

The last 250 years have seen remarkable technological developments – steam engines, computers, and nuclear power to name a few.

Lloyd’s Register has also undergone a dramatic expansion, taking us beyond our traditional obligations to the world of shipping, to serve the quality needs of every sector of industry worldwide.

From our origins in a London coffee house in 1760, the Group now has employees working around the world, striving to enhance the safety of life, property and the environment.

As we celebrate this momentous anniversary we also look forward with confidence to the challenges ahead.

Lloyd’s Register Group Review 2010 1

T he Group in brief

T he group in brief

Read more on page 20

Read more on page 28

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. We provide management systems, fuel oil quality testing, environmental services, vetting and training products and services to support our marine clients. Human element issues are of increasing importance in our complex world and we are helping the industry make the most of its people.

We offer a full range of engineering, safety, risk and management compliance and consultancy services to the land-transport sector worldwide. In so doing, we aim to help our clients achieve a safe, sustainable and environmentally friendly future. Our combination of global expertise and local knowledge is a powerful advantage in sectors where engineering and operating practices vary considerably from country to country.

Our clients range from small local businesses to multinational companies managing large-scale, high-value assets where the cost of mistakes can be very high, both financially and in terms of their impact on communities and the environment. In such a setting, organisations need advice and support they can trust. Companies in the sectors we serve recognise the value of working with us and trust us to help them improve the safety, quality and performance of their businesses.

Lloyd’s Register’s reputation as an independent body has been built up over 250 years, and we are uniquely placed to offer expertise free from commercial constraints and focused on improving safety and quality. We support our clients with intelligent and balanced advice to help them build truly sustainable businesses.

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We provide independent assurance to companies operating high-risk, capital-intensive assets in the energy and transportation sectors. We work to enhance the safety of life, property and the environment by helping our clients to ensure the quality construction and operation of critical infrastructure.

Read more on page 34

Read more on page 42

Energy

Management Systems

We provide design appraisal, inspection and consultancy services to asset owners, manufacturers, operators and engineering procurement contractors, particularly those responsible for assets which could pose a risk to people or the environment. Our combination of 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 and most complex challenges in the commercial world.

Our Management Systems business, LRQA, is a leading independent provider of business assurance services including certification, validation, verification and training. We are accredited by over 45 accreditation bodies and deliver our services to clients in more than 120 countries. LRQA’s Business Assurance helps our clients manage their systems and risks to improve and protect the current and future performance of their organisations.

We are committed to advancing education and finding new ways to improve how businesses operate, whether by carrying out our own research, funding others or providing training. We are at the forefront of technological innovation and are committed to building a global capability of collaborative research and development.

7,542 employees at offices in 247 cities and towns covering all parts of the world

We are a world leader in assessing business processes and products to internationally recognised standards and we aim to deliver complete lifecycle and risk management solutions from design to decommissioning.

We also lead the world in human factors integration – which helps control the risk of human error, which is so critical to the safe performance of assets and processes.

*

*as at June 30, 2010

Lloyd’s Register Group Review 2010 3

250 Years of service

Yesterday Since 1760, Lloyd’s Register has given the marine industry increased confidence in the safety and quality of vessels. Our early surveyors, drawn from the ranks of shipwrights and master mariners, set the first standards of the seaworthiness of a ship. This mix of practical experience and technical expertise has been essential to our success.

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250 Years of service

today Lloyd’s Register has been an independent body for 250 years. Today our constitution reaffirms the long-held principle that the organisation’s public benefit objective is to help enhance the safety of life and property across a wide range of industries and to promote education and research in those sectors.

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250 Years of service

tomorrow The work of Lloyd’s Register touches many aspects of people’s daily lives, from the ships sustaining world trade to the nuclear power plants generating energy for homes and workplaces. With our commitment to safety and innovation we will continue to play an important role as the world adapts to meet tomorrow’s challenges.

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Chairman’s statement / David Moorhouse CBE Chairman

Chairman’s statement The strong Group result in the face of tough economic conditions places it in an excellent position to take advantage of new opportunities as the global economy recovers

my successor, Thomas Thune Andersen, who will take over as Chairman in January 2011. I have every confidence that Thomas, together with Richard Sadler and his management team, will lead this organisation to even greater success in the future.

In this review my task is to tell you how the Group performed in the year ending June 30, 2010 and I am very pleased to be able to report that despite the continuing difficulties in the global economic climate, Group income at £806 million was only marginally lower than in 2009 (£820 million). The Group operating surplus, before charitable donations, and which included significant one-off gains, was £127.8 million (2009: £64.1 million), or 15.9% of revenue (2009: 7.8%).

Further details of our financial performance are contained in the Group Finance Director’s overview on pages 52–53.

David Moorhouse cbe Chairman

I am extremely pleased to welcome you to this review in a year that has seen the Group celebrate 250 years of service to the safety and well-being of the world’s maritime community. It has been an anniversary that very few organisations achieve and even fewer continue to have objectives as relevant today as they were in 1760.

‘The safety of life and property at sea and on land’ was the foundation of our charter in 1760 and remains at the heart of everything we do today.

As you will see from this review, the Lloyd’s Register Group has a significantly more diversified range of activities today than at any time in its history. That diversity has helped us greatly to weather the current economic storms and has given us great confidence as we look to the short- and long-term future of the Group.

This is the last review in which I will participate, as I step down as Chairman at the end of December. I will always remember with great pride the way that the people of Lloyd’s Register rose to a very difficult challenge and took back the ownership and recreated the performance of the Group. It is a great pleasure for me to welcome

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I believe that the strong Group result in the face of tough economic conditions places it in an excellent position to take advantage of new opportunities as the global economy recovers.

Marine Income in our Marine business was 6.7% down on the previous year and 10% down on a constant exchange rate basis. This decline was largely anticipated as the slowdown in activity continued from the previous year, with a significant overall reduction in the number of new construction orders, cancellations and in-service support as owners and operators sought to reduce operating costs. Despite the decline in market activity, I believe that the Group has performed well and has taken advantage of the market volatility.

We are increasingly experiencing the impact of the growing regulation on shipping, particularly in the area of environmental protection. Our human factors expertise and our leadership in environmental issues have placed us in a very strong position to help and assist owners, builders and regulators to find the right solutions.

Better design, better management, better ergonomics and a better understanding of cultural issues will be important for driving improvement across the industry.

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Energy Our Energy business saw income increase by 6% over the previous year and by 3% on a constant exchange rate basis. The acquisition of Scandpower in 2009 made a significant contribution to the performance of the sector and exposed a number of collaborative opportunities with other Group businesses.

Overall the past 12 months have been tough for the energy sector as a whole; whether you are an asset holder, operator, contractor or supplier of services. Oil and gas prices have fluctuated wildly over the year and the global economic recession drove energy consumption lower for the first time since 1982.

Throughout the year we have continued to invest in people and technology to provide our customers with strong support and innovative input to difficult problems. The world is seeking to reduce its dependency on hydrocarbons and to ensure those that are used are cleaner and more environmentally friendly, while at the same time developing alternate energy from wind, wave and sunlight.

We have been very active in trying to bring an unbiased reality to the task of making real and sustainable progress.

Climate change remained high on the agenda of governments and industry alike throughout the year, resulting in an increasingly diverse range of market opportunities for greenhouse gas validation and verification.

During 2009/10 we have seen a growing interest from businesses and governments in improving the resilience of their activity to internal and external threats. For example, understanding the potential impact of supply chain disruption is critical in today’s business world and we help our clients to better manage their risks and to prioritise their issues. This need is driving the creation and implementation of national certification schemes in the UK and USA, while ISO is working on an international standard.

Advancement of education and research The Lloyd’s Register Constitution requires us to secure for the benefit of others ‘the advancement of education’ within the industries we serve and other engineering and science-led disciplines. This year will see Lloyd’s Register donate a further £10.4 million to The Lloyd’s Register Education Trust (The LRET) to further its charitable activity in this most important area.

Transportation

Under its full-time Director and with the support of its independent Our Transportation business was down 14% on the prior year income trustees, The LRET has grown in scale and stature to establish itself as not only a giver but a participating charity, helping to shape and and 17% on a constant exchange rate basis. improve the engineering and science-based education community in the UK and overseas.

In the developed markets of North America, Europe and the Middle East, early fiscal stimulus gave way to significant cuts and cancellations I wrote in previous years about our intent to fundamentally improve in rail and infrastructure projects during the second half of the year. our capability for research and development within the Marine By contrast, 2009/10 saw a continuation of unprecedented levels business and that the primary vehicle for this would be the of railway construction in the developing world. In particular, the economic growth of China continued with a greater focus on domestic establishment of a new maritime campus, developed jointly with the University of Southampton. After a period of considerable delay infrastructure and as a consequence record levels of expenditure on I am pleased to advise you that the development will move ahead new high-speed rail networks and metro facilities. next year. In addition to the development with Southampton, we are pursuing a similar development with the University of Singapore Against this backdrop we undertook a major restructuring of our Transportation business which is covered in more detail on pages 30–33. and I am confident that these two initiatives will both ensure and enhance Lloyd’s Register’s technical and scientific contribution to world maritime development.

Management Systems Our Management Systems business income was up 5% on the prior year and 1% on a constant exchange rate basis.

Despite the difficult economic climate of the developed countries of North America and Europe, Asia, Central and South America have grown quite strongly. However, throughout this period the demand for independent assurance services has remained strong.

Our experience suggests that those organisations that have invested in robust management systems are weathering the economic storm significantly better than those who have not and this very much reflects our experience of previous recessions. Demand for quality management systems (ISO 9001), and occupational health and safety management systems (OHSAS 18001) remains high, although demand for environmental management systems (ISO 14001) was relatively weak during the year. The demand for ISO 14001 is now beginning to grow, as is the demand for client training services.

Governance Our governance has been, and remains, an issue for the Group as the UK government changes to the charity legislation, requiring Lloyd’s Register to become a registered charity, have yet to be resolved with the Charity Commission. Lloyd’s Register is fully prepared for the change, has submitted preliminary documentation to the Commission and has been operating a governance structure for some time that we believe will meet the requirements of the Act. More than ever the success of Lloyd’s Register is greatly influenced by the work and support of its Trustees, its General Committee, Technical Committees, National and Regional Committees, without which we could not have achieved the level of success reported here.

The management and the people of Lloyd’s Register owe a great debt to all of you who give of your time in support of this great organisation and I know that our supporters in their turn admire and recognise the great achievements of the people of Lloyd’s Register.

David Moorhouse CBE Chairman

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Chief Executive’s review / Richard Sadler Chief Executive

c hief executive’s review As we emerge from the global uncertainty with a clear strategic path we are once again investing in our infrastructure, our people, technology and services in order to be well positioned for the future

In our 250th year Lloyd’s Register is in good shape. The business has performed extremely well this financial year considering the bleak economic outlook that we faced in 2009 and we have demonstrated more than ever our public benefit mandate.

While the uncertainty of the past two years has abated, the world is still in crisis. The financial stability of the world’s leading economies is still weak, global security continues to be a concern and the emerging food, water and waste crises will increasingly put stress on the global supply chain. Most importantly the world is faced with the challenge of balancing ever-increasing energy demands with the need to combat climate change.

Richard Sadler Chief Executive

“ Our profitability is essential for sustainability, without which we cannot fulfil our public benefit mandate. ‘Life matters’ will continue to be at the heart of our activity.”

This backdrop provided Lloyd’s Register with challenges and opportunities as the organisation seeks to maximise its contribution to society through enhancing the safety of life, property and the environment.

Prudent management As we entered the new budget year we were faced with exceptionally difficult market conditions and, as a result, tightened cost control measures across the business. We put in contingency measures for an economic worst case scenario, took out some corporate investments as security against a deepening situation and restructured parts of the Group.

Our success has been due to the Group exercising responsible controls on spending and investments and the enthusiasm and professionalism of our employees in continuing to support our clients and strengthening our key account relationships.

As we emerge from the global uncertainty with a clear strategic path we are once again investing in our infrastructure, our people and technology and services in order to be well positioned for the future. While economic conditions still remain unpredictable, we will continue to take advantage of our independent position and maintain a long-term view on the business. We certainly have more clarity on the world economy than we did 18 months ago and we will reflect this in the way we manage the business.

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Market opportunities

Sustainable growth

Our Marine business is seeing the benefit of a slow economic recovery. The short-term excesses in tonnage and new-build capacity are steadily balancing out, which in turn is seeing owners tentatively returning to the yards for newbuildings. Our challenge, as ever, is to maintain high technical standards of construction and meet the demand for fuel-efficient ships.

Our core businesses in marine, energy, transportation and management systems remain our priority and focus and we will invest in and support our people in delivering quality in everything we do.

Our Energy business has perhaps the greatest potential for growth.

With the acquisitions of ModuSpec and Scandpower, Lloyd’s Register is now a leading global provider of independent assurance and expert advice to the energy sector. The Deepwater Horizon incident has brought into sharp focus the challenging frontiers that require a new approach to system evaluation and testing. The human factor is key, particularly with an ageing workforce and a dearth of qualified engineers, and we expect to see a continued increase in demand for our human engineering services.

Our growth will be directed in areas where we believe Lloyd’s Register can best fulfil its mission

Diversification and financial growth is not a goal in itself and we will evaluate diversification opportunities based on core capabilities.

What Lloyd’s Register does best is the assurance of the critical In order to fulfil this mandate we are reliant on our technical knowledge base. I am pleased to report that our vision for a maritime infrastructure necessary for the sustainable continuation of human life on this planet. Our growth will be directed in areas where we centre of excellence in Southampton will finally be realised. We look believe Lloyd’s Register can best fulfil its mission. forward to creating a world-class research and development facility that co-operates with leading research centres around the world, Every decision we make should be guided by the need to demonstrate combining the best of business, academia and government, for the value to society. Our future investments will be made in areas where benefit of all. We are also in the early stages of agreeing with the we believe Lloyd’s Register can provide most value to society and Singapore government a proposal to replicate the Southampton deliver a consistently high quality. facility in Asia.

While we see no sign of the demand for fossil fuels weakening, domestic and industrial nuclear programmes are proliferating alongside renewable sources such as wind and hydroelectricity.

Lloyd’s Register is already leading the way in the nuclear sector, providing the much needed expertise to assure the safety and security of power stations around the world.

The past year has seen significant restructuring of our Transportation business. We have focused our activities on the rapid growth in passenger line and metro infrastructure in Asia, particularly China.

Lloyd’s Register’s technical expertise will continue to be in high demand in emerging economies where urbanisation and rapid industrialisation need safe, sustainable and low-carbon transportation systems. Europe also offers growth opportunities with market liberalisation spreading from freight to passenger services.

LRQA, our Management Systems business, has been particularly successful through the concept of Business Assurance, helping customers get the most out of the certification process through driving quality improvements and reducing their carbon footprint.

We are closely monitoring developments at the forthcoming UN Framework Convention on Climate Change (UNFCCC) meeting in Cancún (COP16) to provide clarity for our customers faced with post-Copenhagen uncertainty.

We recognise that we add value to society in three ways. Firstly through the contribution of time and expertise in carrying out high-value services in the sectors that we serve. Secondly by 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.

Finally we give direct funding through The LRET and are this year pleased to announce a record contribution of £10.4 million. Our enviable independence allows us to direct our surplus into these areas without distribution to private or institutional shareholders.

Our profitability is essential for sustainability, without which we cannot fulfil our public benefit mandate. ‘Life matters’ will continue to be at the heart of our activity.

Strategic objectives Lloyd’s Register’s ‘One World, One Purpose, One Team’ philosophy is more important and relevant than ever. Our core strategic objectives remain unchanged and we will continue to dedicate our energy to driving external focus, improving our efficiency and effectiveness, ensuring we have the right people with the right skills where needed to provide the best service and value to our clients, and continuing to create a high-performance culture.

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Chief Executive’s review / Richard Sadler Chief Executive

c hief executive’s review

I have been reassured by the maturity that has developed amongst the directors in our executive management team. As a unit, we work more effectively and strategically than ever before. We have reviewed the Group functions and their role in supporting the different businesses. We reflected on the different levels of maturity, client drivers, margin opportunity and market conditions in each of the business streams, and agreed that one size does not fit all.

In recognising this difference, Group support functions are being challenged to provide appropriate services to the differing needs of the business and we will review Group investment projects in a different way.

Our profitability is essential to fulfil our public benefit mandate 250 years of service

Lloyd’s Register’s contribution has also been recognised by a number of prestigious awards this year. Our Marine business won the Best Classification Award at the Lloyd’s List Global Awards, in addition to winning the Best Classification Society Award in Asia for the third year running. Lloyd’s Register also won the ‘British Company of the Year’ award by the British government in recognition of its outstanding contribution to UK-China business relations. Group Business Assurance was the proud recipient of two prestigious British Quality Foundation 2009 Lean Six Sigma Academy Awards. Finally our HR programme is gaining increasingly wide recognition for its leading-edge approach to people development through better leadership and professional development.

These awards are a testament to the dedication and hard work of our employees around the world. I would like to personally thank all of our staff, our clients and other stakeholders for their contributions in making Lloyd’s Register what it is today.

It has been an honour for me to guide Lloyd’s Register through its 250th year. It is an extraordinary organisation with extraordinary Richard Sadler people. This year employees were given the opportunity to Chief Executive Officer commemorate Lloyd’s Register’s 250th anniversary by making a positive contribution to their local communities. The LR250 campaign encouraged groups of employees to do something that mattered and get involved in a project that would make a difference to society.

The campaign saw an incredible effort from 42 teams around the world with projects ranging from new homes for disadvantaged families in Vietnam and America, eye tests for children in China, school facilities in Africa, China, Indonesia and Vietnam, clean water supplies in India, and tree planting across the globe.

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Public benefit

Serving the community Safety has been at the heart of our work since 1760 All members of the Lloyd’s Register Group support our mission, which sets out the charitable objectives of Lloyd’s Register: to protect life and property and advance transport and engineering education and research.

Our independence ensures that our profits are reinvested in improvements to our services, to public education, research and development, and donated to charitable causes that support the Group’s mission. Our largest donations are made to The Lloyd’s Register Educational Trust (The LRET), a UK registered charity.

A safer world A fault or an oversight can result in the loss of property or, at worst, the loss of life. The failure of a ship or other means of transport can result in major loss while damage to an oil rig can cause widespread pollution.

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 and property. These set appropriate standards for the design, construction and lifetime maintenance of ships, offshore units and land-based installations. The Group’s surveyors inspect ships, oil rigs and other large structures against the Rules and other published standards, forming an important part of the structure’s safety regime.

Lloyd’s Register’s Rules are constantly being researched, developed and refined. Some £16 million was invested last year to ensure that we have the knowledge and expertise to keep them up to date and to introduce new Rules when new technologies are developed to make sure that clients continue to innovate safely.

LR250 campaign: Clean and safe Employees from our Tiruchirappalli office in India have helped to provide safe and clean drinking water for 400 students at a local primary school. Our team worked with the school and funded the construction of this project, from drilling the bore well to painting the water tank building. The children’s improved health will lead to higher classroom attendance rates and more opportunity to receive a basic education that will serve them well later in their lives.

Advancing education and research We contribute to safety and 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.

In 2009/10, we have organised free business breakfast meetings for members of the UK Aberdeen energy industry; held a marine technology day in New York presenting technical papers on our research and development work; collaborated with TRANSPORTNET, an international network of leading universities, to run the first Antwerp Rail School for the rail industry and transport graduates; and led the debate on the operation and maintenance issues of power generators at the PowerTech 2009 ‘closed-door’ conference in Singapore. These and many other contributions are made possible by the revenues we receive for our services.

We are delighted to have made a donation to the team 2012 Fundraising Appeal, supporting Britain’s athletes on their journey to success.

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Public benefit

THE Lloyd’s Register educational trust Since its formation in 2004, children and young people of all ages have benefited from projects funded by The Lloyd’s Register Educational Trust (The LRET), as have numerous scholars, engineers, scientists and institutions throughout the world The LRET is an independent charity which exists 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.

In the past six years The LRET has distributed more than £15 million in grants and has committed another £15 million of funding for future projects, some of which will continue until 2015. The LRET encourages collaborative working and is involved in an increasing number of projects that link institutions with their counterparts across the globe.

The LRET is funded by the Group but remains entirely independent.

Only its Board of Trustees can decide how funds are used. These funds are divided between 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 for a variety of industries.

In 2009/10 the following organisations benefited from new grants: Pre-university education: The Royal Observatory, UK; The Engineering Development Trust, UK; Engineering UK (Tomorrow’s Engineers); Sea Vision UK; The Smallpeice Trust (Marine Technology Courses 2009–2013); The Smallpeice Course (Railway Engineering Course 2010–2012); Young Engineers, UK (including Young Engineers and Science Clubs, Scotland).

University education: International Ocean Institute, Dalhousie University, Canada; the University of Cambridge, UK; University College London, UK; The Leadership Forum, UK; and The University of Edinburgh, UK. Scholarships were also awarded at seven Chinese universities.

Vocational training and professional development: Railway Industry Association, UK; Foundation for Science and Technology, UK; Maritime London, UK; The University of Edinburgh, Leadership Seminar in Safety Engineering.

Research: National Technical University of Athens, Greece; The University of Western Australia; The University of Nottingham, UK; National University of Singapore; Dalhousie University (Canada) Consortium; Imperial College London, UK; the University of Southampton, UK.

Funded project highlights 2009/10 Researching marine environmental extremes Funding from The LRET has enabled Dalhousie University, Halifax, Canada to create a Chair of Modelling and Prediction of Marine Environmental Extremes. This role will focus on extreme events that occur in the ocean and atmosphere and, in addition to extending the range of useful forecasts, will explore how advanced statistics can be used to assess the impact of climate change on such events.

Dalhousie is leading an international network of researchers from other major academic bodies, namely The University of Adelaide, the University of São Paulo and the University of Southampton.

Boosting interest in the environment with science and engineering Promoting science and engineering in environmental protection is the focus for a funded project for the HELMEPA Junior Environmental Programme in Greece. The programme also teaches about shipping while the HELMEPA Cadets Scheme, for children aged 13 and above, has been designed to keep children interested in marine issues, particularly environmental, and encourages them to consider careers in the merchant marine sector.

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Promoting fire safety engineering Representatives from the consulting and insurance industries, fire services, regulatory bodies and architectural firms will be invited to listen to world-renowned speakers at an innovative six-day seminar on fire safety engineering at The University of Edinburgh, UK. The LRET will also be funding selected scholars through unique fire safety engineering MEng or MSc courses at the University, a recognised leader of the discipline. The course will give them the opportunity to become authorities in this field once they have completed their studies in Edinburgh, Lund or Ghent.

Advancing skills in the rail sector A new National Skills Academy in Railway Engineering is being developed to match the recent significant expansion of the UK rail industry and overcome current shortages in service delivery.

the smallpeice trust With the support of The LRET, UK schoolchildren between the ages of 13 and 16 are taking part in university-run residential courses to learn more about marine technology.

The annual courses, which are run in conjunction with the Smallpeice Trust and the universities of Strathclyde and Southampton, are being supported by the Trust for five years, until 2013.

The LRET funded the successful scoping and bidding exercises for the academy which is being supported by the Railway Industry Association (RIA), representative of 140 different organisations. The Trust will also support the RIA in appointing a Head of Training and Skills.

Supporting exceptional graduates Exceptional students will be given the opportunity to study MPhil courses in scientific computing, sustainable development, and micro and nanotechnology enterprise with an LRET scholarship scheme.

The courses at the University of Cambridge incorporate cutting-edge research and have been designed to enhance the students’ knowledge and develop their interdisciplinary skills. Selected students will have their course fees paid by the Trust.

Each year, approximately 65 students take part in the specially designed courses which give them the opportunity to learn about marine engineering through a series of presentations and practical exercises.

At one recent course in Strathclyde, the budding engineers were tasked with designing a radiocontrolled replica of a large cargo ship capable of transporting goods from Glasgow to Singapore.

The assignment encompassed a range of academic disciplines, such as naval architecture, ship design and marine engineering.

The students were supported by university experts while their knowledge was broadened and tested, and were given the opportunity to attend career presentations from major engineering firms and visit nearby industrial sites. The course also featured a range of social activities and gave the young people an insight into life on a university campus.

Lloyd’s Register Group Review 2010 17

Employees

Focus on employees Life matters. That’s why our employees believe working for Lloyd’s Register is so important.

We’re committed to keeping our employees safe and to furthering their development to help us achieve our goal of protecting lives and the environment

Rotterdam surveyors, Willem Camping and Yuriy Mozhchil, survey a yacht under construction. They are wearing Petzl safety helmets that we have recently introduced.

As we now require our surveyors to wear orange coveralls when they could be at risk of falling into water, it is not unusual to see a mix of orange and white coveralls.

Focus on safety Last year we started a programme to redevelop our approach to the safety of our employees. This year we have been building on these foundations.

We have developed a Group safety strategy and supporting annual safety plan that maps out the key programmes and initiatives that we are committed to delivering to keep our employees safe.

One of the key elements of our strategy is to ensure that all our employees and managers understand the expectation that we have of them and their personal responsibility for safety. As part of this we have been focusing on improving the visibility of safety as a key responsibility and on improving the knowledge and awareness of our employees. This ongoing programme is being supported by the development and delivery of new safety and safety leadership training and the redevelopment of our safety management system.

Our new safety management system is already making it easier for employees to find and understand our safety requirements. This redevelopment is focusing on the identification of requirements for any particular activity and ensuring that requirements are more clearly stated. This has included the introduction of ‘golden rules’ for high-risk activities with which our employees must comply and a robust management process for local variations where they are required.

To provide managers and employees with a greater level of support we have been significantly enhancing our global safety team. Qualified and experienced full-time safety professionals are being deployed across our operations to ensure that expert advice, support, mentoring and training can be provided locally.

18 Lloyd’s Register Group Review 2010

www.lr.org

Safety at worksites One of the main challenges we face is that in many cases we do not control the worksites where we work. This means that our employees have to work under different safety arrangements on a wide range of worksites. To keep our people safe in this type of situation, our employees need to have a high level of safety competence and awareness so they can assess the situation and the adequacy of the control arrangements in place. Where we have identified concerns about work practices or the controls in place, we have raised these with the management of the worksite, and in most cases have worked with them to improve the situation to our mutual benefit.

As part of this process we have been promoting the reporting of ‘near misses’ (where our employees have nearly been involved in an incident that would have resulted in them being injured). The rate of near miss reports has been steadily increasing across the organisation showing that our employees are becoming more aware of potentially hazardous situations and actions. The near misses are categorised to allow us to analyse which types of situations our employees are most likely to meet. We have used this to ensure that we are prioritising our development and training efforts in the areas of greatest risk, with the overall simple aim of keeping our people safe.

Motivating our people to perform The five-year plan to transform our people agenda has already created an impetus for change, and our investment in our human resources activities, particularly in leadership development, is starting to bear fruit.

This year our employee opinion survey showed an increase in our leadership scores, particularly in the key area of motivating staff to perform; this is exactly where our recent development programmes have been focused. This improvement in leadership is at all levels of the organisation and, we believe, heralds a change in emphasis and culture from our managers. With greater inspiration and motivation to perform, our business plans become easier to achieve through dedicated and motivated staff.

As we enter our third year of the plan, we continue to follow through on our key aspects of leadership, technical excellence and performance management.

Leadership Our assessment of leadership capability in the Group continued during the year and included all of the directors being benchmarked externally to the Cass Business School Leadership Index. All directors, as well as the senior management, now have personal development plans in place to assist them in building their capability further.

Natali Doulgeraki, James Forsdyke, Mohammed Ali, Charlie Mumford and Barry Clarkson, trainees on the graduate training scheme, take part in a training course onboard HMS Sultan.

During the year we started to place much more emphasis on emerging leaders within the organisation and their development.

Leadership development centres have been introduced in each region, where the capability of middle and junior managers is observed and the results are fed back to individuals to help structure their development plans. These activities will ensure that we have our future leaders following the right career path at the right time for themselves and Lloyd’s Register.

Technical excellence The technical and professional frameworks, which underpin the expertise expected by our clients, continued to evolve to meet their needs and the demands of the wider technical community. Crossbusiness-stream activities will mean we will increasingly have a more flexible workforce, able to address all of our client needs on a more collaborative basis. Leading-edge technical expertise is central to our business model and we are continuing to develop these frameworks through co-operation, both internally between business units and externally with industry-leading bodies, to ensure that both relevance and topicality is maintained.

Performance management Success in business can only come through people who perform at the highest levels of excellence, and who do so voluntarily. Our employees have shown very clearly, through their responses on the employee opinion survey, that they are both fully aligned with and completely accepting of our mission, values and strategic direction as an organisation. By translating these aspects into meaningful objectives for them we can target our achievement of the business plan and at the same time assure their job satisfaction and retention.

Focusing people on, and working towards, clear objectives will ultimately help us achieve our goal of creating a high-performance culture through better engagement.

Lloyd’s Register Group Review 2010 19

Marine class needed more than ever

20 Lloyd’s Register Group Review 2010

Rotterdam: A major marine hub Lying at the centre of the European shipping industry, Rotterdam is a major hub for global seaborne trade. It is the biggest port in Europe and our activities and support capability reflect the diversity and strength of the maritime cluster in the Benelux area.

Some of the world’s biggest bulk carriers, tankers and containerships call at Rotterdam and other ports in the region, and provide a large share of the operational workload through ship surveys. Also much of the local operational focus is in providing design support and newbuild support for the needs of the highly sophisticated local and regional maritime industry.

“We have important and demanding clients here who are leaders in a wide variety of sectors – shipowners and vessel operators like Spliethoff, Heerema and Allseas who are contracting and managing

specialist niche vessels and installations. We also have shipyard clients building a broad range of smaller to midsize ship types including very high specification and innovative mega-yachts.

Meeting these specialised needs is part of our daily challenge,” says Piet Mast, Marine Business Manager for the Western European Area, based in Rotterdam.

Also key are supporting the needs of equipment and components suppliers, and ensuring quality and safety from the foundry or workshop through installation onboard and in operation.

With demand for inland waterway transport growing, our support for this sector is expanding. From Rotterdam the New Maas River leads inland, meeting the Rhine. Inland ships provide environmentally efficient and effective transportation to and from the industrial heartlands of Europe.

Business review / Marine

m arine The shipping industry may be approaching a watershed moment as it looks to adopt new technologies in response to environmental issues. Class has a leading role to play in this process

Industry overview When we reported last year, we were anticipating a challenging year ahead for global shipping. While 2009/10 has not been easy, talk of a crisis has dissipated. Although the outlook remains mixed, shipping has proved resilient and the industry remains in reasonably good health.

Tom Boardley Marine Director

” In our role as a leading classification society safety always comes first, but the wider goal of a safe environment is completely entwined with the safety of personnel and minimising the risk of loss or damage to ships.”

The world fleet is still growing, although the overall orderbook of new ships is currently declining as deliveries outpace new orders.

However, the tonnage and number of Lloyd’s Register-classed newbuildings on order continues to grow – after a strong performance so far in 2010.

With large numbers of new ships entering the market, there are concerns about the supply/demand balance. Mitigating the impact of new tonnage has been the acceleration in ship recycling. Older tonnage has been removed at increasing rates. Only 5.4 million dwt of shipping was sent for recycling in 2007; this rose in 2009 to 31.6 million dwt.

Newbuilding activity has been focused on bulk carriers. Many of these will be built to Lloyd’s Register class – particularly in Korea, where our overall share of the order book in 2010 is 32%. The container sector, so badly hit by the global recession, is now showing real recovery.

In October 2009, the European Commission’s Competition Directorate completed its investigation into the activities of the International Association of Classification Societies (IACS). While some membership criteria have been updated, the role of IACS remains at the centre of marine safety and we will continue to support it in providing technical leadership in raising the safety bar in shipping.

22 Lloyd’s Register Group Review 2010

Tom Boardley Marine Director

Key drivers: China and regulation There have been two key drivers in shipping in the past decade, and both will continue to be major factors. The first of these is China, which more than ever is the story in world shipping. China has the largest influence on the bulk trades, it is the world’s largest energy consumer and the factory of the world, largely dictating the health of the container trades. As the emerging maritime superpower, China will play a key role in shaping the future of shipping as it becomes the world’s primary maritime market – leading in seaborne trade, shipbuilding and vertically integrated shipowning and ship management.

As Clarkson Research recently pointed out, “China’s trade was the key to shipping’s prosperity in the 2000s.” China certainly saved the shipping markets in 2009 with a stunning import growth of 37% above 2008 trade figures.

Our order book in China has reached its biggest ever levels with over 500 ships under construction or on order to Lloyd’s Register as at October 2010.

Keeping up with new regulations is of continued concern and a challenge to the shipping industry The second driver is regulation – particularly the impact of environmental requirements. Keeping up with new requirements of national, regional and international regulation is of continued concern, and a challenge to the shipping industry.

Ten years ago keeping track of policy development and regulatory changes at the International Maritime Organization (IMO) could be managed by one or two Lloyd’s Register experts. Today, a substantial element of the work of a whole department – 19 man years in 2009 – is focused on IACS’ and IMO’s activities as well as advising governments and owners on the technical implications of proposed or agreed regulations. The continued expansion of regional regulatory requirements is a significant complication for all seeking to comply with (or indeed enforce) such regulation.

Environment and marine safety As well as keeping track of new regulation we must play a leading part in understanding, and helping industry understand, the technologies that will follow increasing environmental regulation and changes in market demand. The shipping industry is probably approaching a watershed moment. How regulatory and market forces develop in response to environmental issues will drive and define the adoption of the new technologies. The safety and environmental performance of new technologies will rely on ever more complex systems and interaction between all the stakeholders in shipping and better co-ordination of performance within shipping companies – all the way from the engineers and navigators onboard ships to the boardrooms and CEOs of world shipping.

China Marine Surveyor Training Institute (MSTI) A third wave of our delegates graduated from MSTI in Shanghai in September. This innovative programme provides the most structured and integrated approach to technical staff training and development the Group has ever offered, and forms the bedrock for future training and staff development throughout our global marine operations.

MSTI is an intense 25-week programme which provides custom-built classroom and field training.

The classroom training takes a holistic approach: providing training in corporate values and ethics; the role of the surveyor; interpersonal skills; as well as an extensive technical programme.

The field training provides the opportunity to put the theory into practice under the expert guidance of dedicated MSTI mentors. The graduates of three programmes are now back in the workplace and demonstrating their enhanced abilities to our clients.

Lloyd’s Register Group Review 2010 23

Business review / Marine

09.00 GMT* South Africa

Senior Surveyor, Roland Mazen, takes a helicopter underwater escape training course. *11.00 local time

02.00 GMT* Korea

11.00 GMT scotland

Senior Surveyor, Hakan Erkal, carries out a generator and main switchboard test at the Hyundai Samho Heavy Industries yard.

Mike Moon, Senior Surveyor, carries out a survey of the anchor handler Kingdom of Fife.

09.00 GMT* greece

11.00 GMT UK

Petros Chronopoulos, Marine In-Service Training Officer, surveying a ship undergoing repairs at Perama, Piraeus.

Zabi Bazari, Ship Energy Services Manager, works on an Energy Efficiency Design Index (EEDI) impact study for the IMO.

24 Lloyd’s Register Group Review 2010

Tom Boardley Marine Director

In our role as a leading classification society, the wider goal of a safe environment is completely entwined with the safety of personnel and minimising the risk of loss or damage to ships. Environmental regulation has moved from an emphasis on preventing accidental losses such as oil spills (although the Deepwater Horizon incident will likely have an impact on future regulation), towards the reduction of emissions and the more efficient use of resources. With the rising price of fuel oil we are also likely to see the impact of the market, as well as regulatory pressures on designers and operators, to find new fuels and alternative means of propulsion.

Technical expertise now crucial Shipbuilders and shipowners are looking to class to advise on both the safety and benefits of new technologies and systems. As an independent classification society our role has long since grown beyond simply verifying structural strength and integrity of propulsion and steering systems on behalf of flag administrations.

While these areas remain a core function, and we are continually improving our service delivery, we have drawn on the breadth of our knowledge and technical expertise to support the increasingly complex needs of Lloyd’s Register’s clients. Such needs can range from software for shipbuilders and designers to technological research.

Our Fleet Quality Management Programme (FQMP) is one example.

We are using sophisticated monitoring tools to anticipate and address potential problems before the safety of people and the environment are compromised.

Our human factors expertise is another, and this will be a major area of growth for us. Better design, better management and better understanding of cultural issues will be important for driving improvement across the shipping industry.

Bridging the gap in China and worldwide Lloyd’s Register continues to innovate in expanding the remit of class to support safety. One area that has required a considerable investment of management time, planning, training and resourcing is shipbuilding. With the growth in shipyard capacity many new entrants into the market, or players expanding their capability into more sophisticated ship types, have needed assistance. Beginning in China, we have developed a variety of gap analysis services to help yards understand what is required and provide support where necessary.

Greek owners leading developments Greek shipping represents about 18% of the world fleet and Greek owners are a significant bellwether for developments in the industry.

We asked a leading Greek shipowner, Captain Panagiotis Tsakos, who chairs the Lloyd’s Register’s Hellenic Advisory Committee, what he thought of the situation facing the shipping market. ” The opportunities created by each shipping crisis are much the same and mainly comprise the ability to acquire good quality vessels at a discounted price and the ability of cash-rich owners to place orders for newbuildings at very low prices. Ordering new vessels at low prices perpetuates the cycle of oversupply against demand thus forcing readjustment of levels in freights as well as in value of vessels. “ It is a cycle that shipping has been operating in for the last 100 years and it is likely to be the same over the next 100 years. I still hope, and have said many times, that there will come a time when shipping becomes a joint venture between all of the major players – from the ship designers to shipbuilders, owners, operators, crews, charterers, cargo owners and cargo receivers.

Together they could produce a stable environment for the benefit of all.”

The latest gap analysis service has addressed the critical issue of verifying welding standards. Lloyd’s Register Asia has developed a new service to assist shipyards by independently verifying their compliance with classification requirements and recognised international standards, identifying any areas that would benefit from improvement.

Lloyd’s Register Group Review 2010 25

Business review / Marine

“Along with designs and selection of materials, welding is one of the fundamental elements of shipbuilding. The quality of the weld can differentiate elite yards from the rest, and monitoring welds by non-destructive examination (NDE) is the only reliable way of confirming that quality,” says Willem Moelker, Marine Business Development Manager for Lloyd’s Register Classification Society (China). “Good quality can’t be inspected into a ship; it needs to be built in during the construction. So it is essential to take an integrated approach when assessing the welding and NDE operations to accurately assess a shipbuilder’s ability to meet the required standards.”

“The gap analysis is carried out by Lloyd’s Register Asia specialists, and the response from Chinese shipbuilders has been very positive,” says Moelker; several of China’s top yards have already committed to the process and one of the state-owned shipbuilding groups has ‘strongly recommended’ the process to all of its member yards.

Project highlights in 2009/10 • We have provided effective guidance to shipowners on compliance with emissions regulation.

• Our new container-securing rules and Lashright software support safe, secure, containership stowage while providing designs with more flexibility.

Looking ahead Shipowners, shipbuilders and regulators need class more than ever.

The marine classification model has evolved over 250 years and the evolutionary process will continue. There will be an increased demand from those wishing to move well beyond compliance even as compliance grows more arduous. But we must still ensure we are able to support those who just need to know they meet requirements, as well as those operators who are using increasingly sophisticated risk management tools.

Our role is to minimise risk while maximising opportunity for our clients.

Lloyd’s Register’s Marine business will seek to grow in quality and expertise more than in size. With more competition in the market we cannot always expect to see rapid growth as compatible with growth in technical excellence, breadth of service and delivery capability: quality of service is always more important than volume.

Our focus will be doing more of what we are doing, and trying to do it better

• With leading operators, Lloyd’s Register has pioneered the concept of extending docking cycles from the customary maximum of five to 7.5 years. The extended dry docking cycle project is now in its fifth year. If considered successful, such schemes provide flexibility to containership operators and greater control over where and when, in their planned maintenance management, they dock their ships.

The opportunities presented by the search for environmental efficiency will be the priority in the year ahead. With the exception of a very few specialist trades, new regulation and new technologies have yet to be translated into changed designs. Our role is not to predict when this will happen, but to be ready to support the safety and environmental performance of any technological evolution when it does.

• New welding gap analysis service to shipyards in China – a measurable means of addressing the critical issue of testing welding quality.

Looking further ahead we can expect to see the dominance of the diesel engine fired by heavy fuel oil to be challenged by nuclear power or fuel cell technologies.

• In 2010 the Japanese government formally authorised Lloyd’s Register to carry out surveys on ships flying the Japanese flag – the first non-Japanese society to receive such recognition.

We will help ensure that all players in the shipping industry understand the risks involved in managing change and that all commercial decisions are predicated on safety and environmental protection priorities.

• More than 200 surveyors have been trained to act as Maritime Labour Convention, 2006, inspectors, ready to support operators and flag states worldwide.

• Our strategic research continues to grow – notable developments worldwide include a biofuel project with Maersk, green bulk carrier designs with Bestway in China and a greater understanding of the potential for nuclear propulsion in shipping.

• We joined with fellow IACS classification society ABS in developing software for Common Structural Rules for bulk carriers and tankers.

• We are working closely with Korean yard DSME on green technology projects, having signed an agreement in 2010 for a joint research project.

26 Lloyd’s Register Group Review 2010

Tom Boardley Marine Director

Significant contracts have included Suezmax tankers being built to the latest green concepts, and the first ‘Newcastle-max’ bulk carrier contract to be won by a Korean yard, which will be built to Lloyd’s Register class at a new facility at Subic Bay in the Philippines.

We have also been chosen as the preferred class for the new generation of Kamsarmax bulk carriers to be designed in all major Korean yards. Many of these ships have been ordered by Greek owners, a market where we are very strong.

Lloyd’s Register is also classifying the generic front-end engineering and design for the world’s first floating LNG (liquefied natural gas) facility. Our Energy business is also working on this Shell FLNG project; for more details see page 41.

Korea becoming shipbuilding design hub

ambition in korea This has been another significant year in the continuing evolution – and ambition – of the Korean shipbuilding industry, where we currently have a 32% share of the newbuilding orders.

In 2010, Lloyd’s Register was again voted the No. 1 classification society in Korea by the Korean Shipbuilders’ Association (Koshipa).

Significant ships have included the first Whale class VLOO (very large ore-oiler) to be built in Korea.

Seen here is the A Whale owned by TMT Co. of Taiwan. This 317,000 dwt ship built to Lloyd’s Register class, was delivered in January 2010, and was then converted into an oil skimmer to help clean up the waters in the Gulf of Mexico.

Lloyd’s Register is strengthening its support for Greek projects in Korean yards with the transfer of surveyors from Hellenic Lloyd’s to Korea. The aim is to provide enhanced classification services to clients and offer not only technical but also cultural support for the smooth completion of projects.

The Busan Design Support Office (DSO) is expanding its services to Korean shipbuilders, through design support and technical advice for ships they are having built outside Korea.

Asian-based shipowners are becoming an ever stronger presence for Korean shipbuilders. Lloyd’s Register has worked closely with many Asian shipowners and has accumulated an order book including owners from Taiwan, Singapore, India and Hong Kong.

Technical development Guidance notes for IMO Type B independent tanks for gas storage and transportation have been released with input from our Korea and Japan offices, working together with our London Research Department.

Lloyd’s Register has continued to develop rules for floating offshore installations in line with industry’s needs and to enhance its technical support to clients from the Busan DSO.

Lloyd’s Register Group Review 2010 27

transportation Restructured business looks to promising future

28 Lloyd’s Register Group Review 2010

www.lr.org

Global projects with China CNR Corporation Limited (CNR) China’s rail agenda is ambitious. If national government targets are met, by 2014 China will be home to 65% of the world’s high-speed track and, by 2020, 45% of the world’s metro track will be in China too.

The country has international ambitions as well and, with Lloyd’s Register’s assistance, its manufacturers are rapidly becoming leading global suppliers of rail systems.

One of the biggest Chinese rolling stock manufacturers is China CNR Corporation Limited (CNR). At the firm’s vast Changchun workshops, in China’s far north, Lloyd’s Register is providing extensive system engineering and assurance services for a number of large-scale international rolling stock projects.

Since 2008, CNR has been working on a 120 metro-car project for Hong Kong’s MTR Corporation. The new rolling stock will be used on the MTR’s urban lines from 2011 onwards and we are providing project-wide management support services, with our people aiding and overseeing the rolling stock’s design, manufacture and installation.

We have also played major system assurance roles on other CNR projects, including the Al Mashaaer Al Mugaddassah ‘Mecca’ Metro in Saudi Arabia and for metro systems in Brazil. On these projects, various Lloyd’s Register teams work in specialist technical interface and advisory capacities.

In the future, Lloyd’s Register looks set to further cement its close and successful relationship with CNR by assisting this Chinese rail giant as it develops its business globally.

Business review / Transportation

Transportation Emerging economies need safe, sustainable and low-carbon transportation systems and are set to lead the demand for new rail systems

Industry overview Railway sector activity levels and volumes of expenditure have shown a marked difference between the world’s mature and emerging economies in the past year.

John Stansfeld Transportation Director

“ We’ve made some significant changes to our Transportation business during the year, bringing much needed clarity to the way in which we tackle our target markets.”

It is widely known that most developed economies, including those in Europe and the Gulf, continued to experience the effects of the global credit crunch throughout 2009/10. Many governments applied fiscal stimulus measures during the early part of this period in an attempt to kick-start stagnated economies. However in many of the railway markets we serve, this was largely replaced by the middle of 2010 with significant spending cuts, resulting in cancelled or delayed projects. Where such measures have yet to be implemented, such as the UK, many railway organisations have held back on capital expenditure in the expectation of cuts to come.

By contrast, 2009/10 saw a continuation of unprecedented levels of new railway construction in Asia. In particular, the rapid economic growth of China continued unabated, with record levels of expenditure in a new high-speed rail network and new metro railways. This domestic newbuild programme was also supported by an increasing emphasis on developing China’s own manufacturing capability and the year saw a marked increase in their efforts to bid for and secure turnkey railway construction projects in other parts of the world, including the Middle East.

Business restructured This backdrop provided the principal catalyst for a number of significant changes made to our Transportation business during the year. Most notable of these was a restructuring of the business and the subsequent closure of our German-based transportation management consultancy, BSL Management Consultants.

30 Lloyd’s Register Group Review 2010

John Stansfeld Transportation Director

Restructuring saw much needed clarity brought to the way in which we tackle our target markets, with our UK, Netherlands and Asia operations taking clear responsibility for market development in different geographic areas. We concluded that our efforts should be concentrated upon our traditional workstreams of expert technical advice and independent assurance. In parallel, we halved the size of our central business support function to create a clear alignment between central capability and local operational needs. Restructuring was cemented with the appointment of a new Transportation Director, John Stansfeld. John had previously spent many years as director for Asia and latterly as Group Strategy Director.

The acquisition of Scandpower provided a valuable expansion of our railway capability into the Scandinavian region. Scandpower has a team of world-class railway system assurance specialists whose arrival provided us with both a strong platform for further growth in Scandinavia and the facility to bolster the deployment of high-quality capability in some of our target markets.

Our independent assurance and technical advice helps clients operate safe, sustainable and dependable services Leader in ERTMS assurance Turning to an operation-by-operation overview of the past year, mention should first be made of our largest contract win since our certification of the Taiwan highspeed railway – namely our appointment as the interoperability Notified Body (NoBo) and independent safety assessor (ISA) for the installation of the European Rail Traffic Management System (ERTMS) to the Danish railway network. The £7 million contract, with an expected duration of 12 years, sees Lloyd’s Register taking a significant lead in the provision of independent assurance services in this new technology area.

The contract, with Banedanmark, includes an evaluation of the acceptability of replacing the entire mainline and suburban signalling and telecommunications networks. The project is a good example of co-operation across our business, with the tender phase being led by our UK operation and delivery being managed from Denmark with the co-operation of other parts of the Group, including Lloyd’s Register ODS. Growing order book in UK The award of this work in Denmark cemented a wider improvement in the fortunes of our UK business, as reflected in a growing order book at a time when general market conditions in the UK rail sector remained tough for providers of professional services. Part of this success stemmed from a need for provision of UK independent assurance expertise in other markets served by our Transportation business, notably the Gulf and China.

Lloyd’s Register and the China Classification Society have teamed up in a joint venture, CCS LR Technical Services Ltd, to offer long-term technical support to China’s fast-expanding rail industry.

In addition, we won many significant assignments from both existing and new clients. UK train-operators Northern and Virgin separately awarded contracts for the provision of condition auditing services; the former to capture both station and rolling stock condition, and the latter for rolling stock only. We also reinforced our position as one of the UK’s foremost providers of NoBo services by securing the work to assess the new Stansted Express fleet on behalf of Bombardier Transportation.

At the advisory end of our work spectrum, the UK and Asia operations were awarded a sizeable project. They will provide engineering support in the development of a new freight bogie to be manufactured by United Group Ltd for locomotives being developed by GE Transportation for the Australian narrow-gauge freight network.

Technical consultancy of choice in the Netherlands The underlying performance of our Dutch business remained strong in 2009/10. Much of the year saw a continued focus on closing out the remaining issues surrounding our fitment of the Bombardier EBI Cab 2000 European Train Control System to two fleets of Dutch freight locomotives. Although some remaining work requires our involvement, we signed an agreement with Bombardier in early 2010 to divest our long-term interests on this initiative.

Lloyd’s Register Group Review 2010 31

Business review / Transportation

In other respects, the Dutch operation had a successful year, despite tough market conditions. The business remains the technical consultancy of choice for the provision of rolling stock expertise and assurance to the Dutch railway sector. Our continued growth in the provision of railway condition monitoring systems, based upon the Gotcha Monitoring Systems (Gotcha) wheel-rail interface measurement system, has also provided an important cornerstone for the business. A large part of the success of Gotcha is due to its flexible functionality. The system started life as a wheel-rail measurement device, but is now expanding through an investment programme to provide hot axle box detection and pantograph contact quality. Critical system interfaces such as these remain some of the most difficult areas of the railway to manage. Gotcha’s ability to diagnose the early signs of poor interface quality enables railway undertakings to minimise costly reactive maintenance and, most importantly, help ensure that the railway remains safe.

Gotcha’s computing platform flexibility, information quality and the ease with which the system can be installed, have made it a preferred choice for several railways and 2009/10 saw several key sales successes for the system. Dutch infrastructure owner, Prorail, have chosen the latest generation of Gotcha to replace its existing 41 Gotcha installations. Pilot systems were installed in the UK, France and Morocco.

03.00 GMT* China

Madam Niu Ying Ming, Chief Engineer of Beijing Metro and Mack Zhang, General Manager, CCS LR check a new line’s signalling system. *11.00 local time

10.00 GMT* Netherlands

Rewards in Spain Our Spanish rail business during 2009/10 has secured a continuing stream of work for the indigenous manufacturing industry, including CAF and Dimentronic, part of the Invensys Group. The business gained pre-accreditation status against Spanish Notified National Technical Rules in 2010, allowing it to aim for recognition as a certification body – a position held by only one other organisation, affiliated to the Spanish government.

Linda Swart, Engineer, testing a retrofitted onboard European Train Control System (ETCS) solution on a Dutch freight locomotive.

10.00 GMT* Italy

We have reinforced our position as the leading independent safety assessor to the Gulf Safety assurance in the Middle East 2009/10 was a landmark year for our Dubai-based team as they independently certified the safety of the Dubai Metro Red Line, enabling passenger-carrying services to start in accordance with the original, ambitious timescale.

Our lobbying of major governmental bodies on the benefits of independent safety assessment also bore fruit in 2009, with the award of several notable ISA assignments. For example, our Asia business secured the ISA role with Chinese turnkey contractor, CRSCD, for its construction of the Mecca Metro in Saudi Arabia.

In parallel, our Dubai- and UK-based teams began ISA activities for the Al-Soufuh Tram and Masdar PRT system in Dubai. These roles reinforce our position as the leading ISA provider to the Gulf railway sector and help ensure the application of international best practice in the management of system and operational safety.

Surveyor, Jose Antonio Adán, checks pneumatic connections as part of new rolling stock project for the Metro de Madrid.

11.00 GMT UK

Senior Rolling Stock Systems Consultants, John Molyneux and David Jamieson, set up an electromagnetic field measuring instrument used to test EMF emissions.

32 Lloyd’s Register Group Review 2010

John Stansfeld Transportation Director

Significant growth in China Our Asia business witnessed by far the largest growth during 2009/10. Consolidation of our Australian business, largely as a result of a reduction in the demand for safety assurance expertise, was more than offset by significant growth in our China business.

Following 18 months of careful lobbying, 2009 was the year in which significant parts of the Chinese railway sector embraced the idea of a systematic approach to system safety. This was evidenced by a flurry of ISA assignments for new-build metro lines, including Beijing (Yizhuang, Changping and Fangshan), Xi’an and Shenzhen.

To drive home our early lead in the Chinese assurance market and provide a platform for long-term growth, we strengthened our joint venture relationship with the China Classification Society (CCS) in the rail sector in early 2010. CCS LR Technical Services Limited (CCS LR) is expected to give us China-wide access to the railway sector and enables us to establish ambitious growth plans for the future.

Looking ahead Overall, the future looks very promising for our rail sector activities.

While some western markets may see a railway spending squeeze as central governments look to reduce national debt, it is likely that the traditional form of blanket cutbacks will be replaced with sensible attempts to restructure railways so that they add more value. The demand for organisations such as Lloyd’s Register may therefore remain strong as significant technological and organisational changes require some form of validation.

The slowdown of a number of projects in the Gulf is viewed as temporary and it would appear that the major railway plans for the region remain intact. We are excellently placed to continue our push for adoption of international best practice in safety assurance techniques in this market.

And of course there is China. Its spend on railways is likely to remain unprecedented for the foreseeable future and we anticipate that this will enable significant year-on-year growth in our assurance activities.

For anyone with more than a passing interest in significantly improving the safety performance of the railway industry, this represents a once-in-a-generation opportunity.

UK Onboard energy monitoring systems London Midland asked Lloyd’s Register to monitor the energy usage of Class 323 vehicles. The aim was to investigate the energy consumption of the vehicles to determine the potential benefits and pitfalls of using an onboard energy monitoring system.

We developed an onboard energy monitoring system with remote download facility in accordance with EN50463. We were able to analyse the data from a number of test scenarios and provide detailed advice to London Midland.

The trials have shown that there is potential to achieve significant energy savings through the introduction of measures such as energyefficient driving and alterations to stabling regimes. The adoption of metered billing should also lead to substantial reductions in energy costs for London Midland.

Lloyd’s Register now offers a standard energy monitoring system, backed up by comprehensive energy efficiency services, to train operators in the UK and throughout Europe.

Lloyd’s Register Group Review 2010 33

energy Focusing on the long term

34 Lloyd’s Register Group Review 2010

North West Shelf, offshore Western Australia North Rankin redevelopment Lloyds Register Asia has a strong and ongoing relationship with Woodside. Besides work with the North Rankin 2 project we are providing validation operations verification and/or classification to Goodwyn A, Angel and Pluto fixed facilities and their Maersk Ngujima-Yin, Northern Endeavour and Nganhurra floating production, storage and offloading (FPSO) units.

Our work with Woodside reflects a strong framework agreement for validation and classification services, with dedicated Lloyd’s Register teams in London, Aberdeen, Perth and Kuala Lumpur supporting the refurbishment of North Rankin A, one of the world’s largest capacity gas production platforms, in readiness for the installation of North Rankin B.

The North Rankin B platform presents its own unique challenges.

Installing the deck by ‘float-over’ method will make this project one of the largest of its kind in the world. It will be connected by two 100-metre bridges to the existing North Rankin A offshore facility.

A dedicated team of structural and foundations experts will help contribute to the project’s success, backed up by our extensive knowledge of the existing North Rankin A facility and local regulatory environment.

“Our independent validation services will help to assure Woodside that its business is complying with regulations, and that project contractors are meeting the desired performance standards,” says Jeff Baker, the Energy Business Manager for Western Australia and New Zealand.

North Rankin B is scheduled for completion in 2013. With North Rankin A, it will operate as a single integrated facility.

Business review / Energy

e nergy The critical challenge for industry is to meet the long-term increase in demand for energy

Industry overview The past 12 months have been tough for the energy business – whether you are an asset owner, operator, contractor or supplier of services.

Oil and gas prices have fluctuated and the economic recession has driven global energy consumption down for the first time since 1982.

At the start of 2010, oil prices were below US$40 per barrel. However, they have increased steadily since OPEC aligned production with the rate of consumption, and with prices beginning to stabilise there are indications that more capital projects are under consideration.

Iain Light Energy Director

“ The energy market of the future will be shaped by the way the industry and policymakers respond to the challenges of energy security, environmental sustainability and economic development.”

The critical challenge for industry is to meet the long-term increase in demand for energy. One driver of this is population growth, with the world’s population estimated to rise from 6.8 billion today to nine billion by 2050.

As living standards continue to rise worldwide, hydrocarbons and other traditional forms of energy will continue to support economic development. But they will be complemented by newer forms of renewable and nuclear energy, essential to helping meet future demand and reducing CO2 emissions. Around the world, we will see changes in how energy is supplied and used. From the ‘end-of-pipe’ solutions, like carbon capture and storage, to ‘cradle-to-cradle’ applications, like algae-based biodiesel and large-scale solar power, our global society is driving energy technology innovations on a scale and at a rate not seen before.

As a consequence, ageing assets and facilities across the energy industry are being upgraded and replaced, while new technologies are being tested and developed to provide power that is safe, efficient and sustainable. Energy companies know they have to focus on the long-term environmental aspects of their projects when it comes to making decisions. National, regional and international energy policies are demanding cleaner energy provision, and we continue to support our clients with robust, technically superior advice and services that seek new ways to meet these challenges.

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I ain Light Energy Director

Introduction Confidence is a valuable commodity in a high-risk, capital-intensive business but must be supported by a sound technical base. Every day our clients rely on our technical expertise, integrity and impartiality.

Our clients’ work is focused on exploration, production, transportation, refining, storage, power generation or transmission. Our role is supporting safety and to help mitigate risks and we have been working closely with our clients to help them understand and address the risks they face. We provide this long-term confidence in our assurance and verifications services and continue to support the energy industry in addressing its technical and management challenges.

The acquisition of Norwegian risk management business Scandpower AS in December 2009, made us the leading authority in business assurance and risk management services to the oil and gas, nuclear and transportation markets. Strategically this acquisition will give us a very significant position in the Norwegian Continental Shelf – a region that is increasingly active as energy exploration and production is moving further north into more harsh and challenging conditions. Scandpower’s expertise will provide us with significant growth opportunities in the Arctic, Russia and Barents Sea, building on our position as one of the leading class societies.

Our role is supporting safety and to help mitigate risk During the year we strengthened our approach to how organisations manage their assets, systems, people and processes safely, responsibly and efficiently. Our services look at businesses of all sizes and from every angle, to assess where the potential issues lie and weigh up the level of each threat and its consequences. Having assessed the risks to supply chains, processes, people and business as a whole, we help to ensure organisations remain safe, productive and compliant.

We believe this approach makes a clear statement about the way an organisation is committed to making sure their systems are in place and working, equipment is suitable and being rigorously maintained and people are properly trained and equipped; the ultimate client solution in building a positive reputation in the industry and the wider community.

Safety – a measure of reliability and competence In the same way that there is only one position – safety; every component has one common characteristic – performance.

We believe that safety cannot be separated from performance: a high-performance culture must be a safe culture. And industries that rely on ageing technology require ways of mitigating the risk of equipment failure. The Bureau of Minerals and Petroleum in Greenland, for example, chose Scandpower to inspect and approve drilling rigs bound for offshore exploration in Arctic waters.

SOUTH KOREA RBMI contract win from S-Oil Corporation Our Energy team in Korea is working with one of the country’s leading refinery companies, providing our reliability-based mechanical integrity (RBMI) services at S-Oil Corporation’s Ulsan integrated petrochemical complex.

The project is significant, being the first RBMI services contract to be awarded in North East Asia.

Work began in 2009 and will take an estimated 24 months to complete.

The RBMI contract with S-Oil, coupled with similar contracts in Malaysia and Australia for the upstream and downstream energy sectors, brings us to the fore in risk-based inspection services in Asia and will help us achieve our target of being the leader in this field in 2010.

Lloyd’s Register Group Review 2010 37

Business review / Energy

Our work with Suncor Energy on an oil sand upgrader which had caught fire, enabled kit to be brought safely back into production a year ahead of expectations, avoiding opportunity costs exceeding US$300 million. Suncor has since completed an 11-month project that interfaced our latest reliability-based mechanical integrity (RBMI) software to its safety assessment principles and work order systems.

10.00 GMT* Norway

We have been working with a number of other world-class operations integrating RBMI software as a tool to help operate equipment at capacity and make informed and timely decisions on how plant and equipment is maintained.

For example, we carried out work for NASA who chose RBMI as their solution at the Marshall Space Flight Center in Huntsville, Alabama, USA. RBMI software and services will support an entire spectrum of the agency’s work on propulsion and space operations including serving the International Space Station.

In a challenging business environment, safety, risk and technical assurance are crucial Our work in the utility sector has evolved throughout America, Europe and the Middle East. We have carried out safety management reviews for the Abu Dhabi power and water transmission sectors on behalf of the Abu Dhabi regulator. This included an assessment of existing safety management arrangements, root cause incident analysis and a review of conditions and working practices at plant and construction locations across Abu Dhabi.

We have assessed major utility groups, including Fingrid, ScottishPower and E.ON Central Networks, against the requirements of PAS 55 – the internationally recognised certificate for good asset management. Our latest project was with Statnett SF, Norway’s main grid owner and transmission system operator, carrying out comprehensive risk assessments on all 130 of its transformer stations.

Brynhild Davidsen, Anders Crone and Eric Augis, Lloyd’s Register ODS, set off for a failure investigation at an offshore platform. *11.00 local time

03.00 GMT* China

Gerard de Moel, Senior Surveyor, ModuSpec inspects a newly built truck-mounted land rig.

11.00 GMT UK

Driving the sustainability challenge Making use of reliable and independent analysis, supported by appropriate design codes and standards, our work has helped to deliver sustainable energy solutions. Certification and due diligence reviews of new forms of power generation equipment and systems are necessary as part of a confidence building process with local communities and industry stakeholders. These often require validated design analysis.

During the year we completed a hazard identification (HAZID) exercise on what will be the world’s largest carbon capture plant for Doosan Babcock, based in Renfrew, Scotland, UK. The HAZID reviewed the early design of a post-combustion carbon capture plant and recommended over 40 actions to reduce the risks to people and the environment. The plant will capture CO2 from the flue gas stream of the Antelope Valley coal-fired power station in North Dakota, USA.

Andy Wincup, Senior Surveyor, climbs into a deaerator while carrying out an in-service inspection at a power station.

17.00 GMT* USA

Chi Huynh, Senior Software Developer, discusses the development of a new risk management product for our energy clients.

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I ain Light Energy Director

Wave projects are another example of the type of work where independent assurance is important. We have been involved with Atlantis Resources Corporation in the certification of their 1MW Solon deep water tidal turbine (which involves our teams in Asia and across Europe); and in developing national standards for wave and tidal energy devices through the European Marine Energy Centre (EMEC) in Orkney, Scotland.

The emerging issues of sustainable operations and business practices – particularly the impact of environmental requirements – are of continued concern and a challenge to industry. Our driver for debate was the UN COP15 climate summit in Copenhagen in December 2009. A series of Lloyd’s Register podcasts featured our leading global climate change experts addressing the issues raised by industry and governments.

Nuclear expertise During the year we have been actively involved in engaging stakeholders in the issues surrounding nuclear power and its role in contributing to a low-carbon economy.

Of the 438 nuclear power plants in operation today worldwide, 348 are at least 20 years old. Many have reached or even exceeded their expected lives, and we are helping to support the safe life-extension of nuclear power reactors as an alternative to building new plants.

Recognition of our expertise in this area is highlighted by the contract awarded to our Scandpower team by Battelle Energy Alliance LLC (BEA), a contractor to the US Department of Energy, to develop a series of programmes to assess and inspect reactor pressure vessel integrity.

The challenges facing new nuclear power are immense, and risk management, independent assurance and inspection will continue to be paramount. Our RiskSpectrum software is already used by over 50% of the world’s nuclear plant, and our teams in Stockholm, Malmö and Houston have been pioneering new work on pipe rupture frequencies based on more than 10,000 reactor critical years of evidence.

We were a UK representative at the International Atomic Energy Agency workshop on nuclear knowledge management in the Czech Republic. We presented our work on electronic safety cases, as well as providing a broader overview of knowledge management thinking from across other industries.

Product and service development Our integrated service portfolio reflects the world’s need to source energy from many different resources, which vary in availability and cost, carbon intensity and contributions to energy security.

For companies wishing to export pressure equipment to China, we are one of the few organisations granted a Memorandum of Understanding by the Chinese Special Equipment Inspection and Research Bureau to provide a range of advisory services.

Our teams delivering pressure equipment services include the largest number of qualified American Society of Mechanical Engineers (ASME) surveyors outside the USA. We have helped Indian manufacturers to meet ASME nuclear directives; and have established a Centre of Excellence in Seoul, which specialises in ASME nuclear expertise.

Technical expertise is critical for clients in today’s challenging environments and our technical role is often supported by regular research. One example is the report published with the Athens Group on the state of non-productive time (NPT) on high-specification offshore oil and gas assets. The research highlighted commissioning and human resources-related NPT as key areas of concern including the difficulty in finding qualified personnel to reduce topside-related risks and the need to improve rig crew training. In response to these issues, including asset availability and maintenance concerns, we developed a risk-driven asset performance management service to improve asset reliability.

By 2030, the world could be using 50% more energy than it does today We are positioning ourselves for the fastest growing energy markets, in particular liquefied natural gas (LNG), where global production capacity could more than double by the end of the decade. By combining our marine oil tanker and gas carrier knowledge with our offshore oil and gas expertise, we are further strengthening our market position as the trusted advisory body, and fast becoming the leading authority on floating offshore installations (FOI). This foresight helped us achieve a major project from owner PT Trada Maritime in Jakarta, Indonesia, for the classification of the floating storage and offloading (FSO) vessel Lentera Bangsa. The work involves fatigue design analysis and design review services which will be carried out by our engineering team in Kuala Lumpur. PT Trada Maritime is the leading FSO provider in Indonesia.

Lloyd’s Register Group Review 2010 39

Business review / Energy

Engaging industry and sharing knowledge By playing a leading role in sharing knowledge and best practice across various market sectors we help our clients and our industry. So we have increased our involvement within the ASME and American Petroleum Institute (API). We sit on several ASME technical committees and are developing enhanced client training programmes. In the Middle East, for example, we delivered a series of three-day training courses on ASME Boiler and Pressure Vessel Code Section IX for clients in Abu Dhabi, Dubai and Kuwait.

Also in 2009/10, to engage with stakeholders and fulfil our public benefit mission we: • hosted a seminar on UK and European offshore wind farm opportunities in London with Samsung Heavy Industries • presented a technical paper at the Institute of Welding’s international conference in Singapore • developed inspection workshops on land rig equipment used in coal seam gas drilling – an important source of energy in Australia, United States and Canada • joined forces with the Institute of Corrosion to deliver a widely acclaimed training scheme for industrial surface preparation and coating operatives • presented lectures on rig equipment at the influential Curtin University of Technology, Perth, Western Australia and at the University of New South Wales • hosted a seminar in Seoul for 30 leading Korean companies on issues associated with risk • led the debate on the operation and maintenance issues of power generators at the PowerTech 2009 conference in Singapore • led the International Organization for Standardization (ISO) Preliminary Meeting on Asset Management, attended by representatives from 13 countries.

North sea Waste management facility The new Baker Hughes Eco-Centre™ waste management facility at Peterhead, Scotland, provides the North Sea oil and gas industry with the highest level of environmentally compliant waste processing services from the rig site to final disposal. The centre is able to treat all of the liquid and solids waste generated during drilling operations – an industry first.

The onshore site processes oil-contaminated (hazardous) waste from offshore and marine operations. It was developed in conjunction with Lloyd’s Register which between July 2008 and April 2010 worked with Baker Hughes to obtain a full pollution prevention and control permit.

Baker Hughes is setting the environmental standards against which the rest of the industry will be regulated, and is emphasising to its customers how the Eco-Centre™ facility can improve their environmental footprint. Lloyd’s Register helped Baker Hughes achieve these standards, and developed new models to generate estimates and original data to fulfil the needs of the regulator.

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I ain Light Energy Director

Project highlights 2009/10 Verifier of choice

Looking ahead

We have been working with ConocoPhillips (CoP) since it began its There is a growing focus on the effects of UK upstream operations in 1964. Our compliance and engineering the production and use of energy on the services team provides verification services to all CoP’s 36 installations in the North Sea and an onshore gas terminal. The work is a life-cycle natural environment. process encompassing design, installation, operation and final decommissioning. This helps to ensure that CoP’s assets are operated We will continue to evolve our business and our services to reflect the changing needs of an energy industry which faces significant appropriately and that people remain safe. challenges, including where operations are conducted; national and international climate change measures; increasing demand for At the forefront of FLNG renewables; technical risks with new energy sources; and global Our work has started with Shell FLNG on the design plans and competition for skilled workers. development of a non-propelled vessel to be moored offshore near subsea gas wells. The FLNG vessel will secure gas reserves as an The energy industry will have to promote even higher standards alternative to laying pipelines and the construction of onshore of competence and safety in the future. We see a move towards process facilities, minimising impact to the local environment. Shell a performance and risk-based approach for regulation and, following has identified up to seven sites in South East Asia and Australia the Deepwater Horizon incident and the impact on the Gulf of Mexico, where these vessels can be used, the first being the offshore Prelude the wider exploration and production operations in the oil and gas field on the north coast of Western Australia. The vessel will be sector will move towards a safety-case regime placing responsibility 500 metres long and will be the largest ever built. on the operators. In turn, the operators will demand higher levels of integrity from their contractors on equipment, systems and Powerful co-operation personnel. Pipeline integrity is another ongoing concern.

Lloyd’s Register is helping China Nuclear Power Engineering Company (CNPE) to realise its ambitious plans of designing, building There will be a widespread requirement to improve operational and equipping 40 new reactors in the next 20 years. We have signed effectiveness through people and processes, integrating the human a Co-operation Agreement with CNPE – a leading player in the interface with hard physical assets. We see an increasing role for our Chinese nuclear industry – for the development of a new web-based human factors and ergonomic specialists with their understanding of version of risk-monitoring software and related consulting services. human behaviour to support the design of equipment and systems to improve safety, health and performance.

Wind energy pioneers Climate change, which is one of the most important political and Lloyd’s Register’s Scandpower has been involved in providing risk business issues of our time, presents new challenges for verification analysis and HSE support to Norway’s Statoil during the entire development and operational phases of its Hywind Demo project – the and compliance processes; and the overriding goal of our energy world’s first full-scale floating wind turbine. The challenge throughout team will be to develop products and services that maintain our was to adapt our knowledge of best practice from offshore oil and gas leading technical edge in serving the wider needs of the energy industry. installations to this pioneering renewable wind energy installation.

Biomass heat and power sensation Our team from Germany supervised the construction and commissioning inspection of the biomass power station in Hennigsdorf. The €19.8 million plant is designed to burn green wood chips in combined heat and power generation, using a process that transforms thermal energy into electricity at relatively low temperatures and pressures. The team also has experience with biogas and bioethanol plants.

Lloyd’s Register Group Review 2010 41

Management systems improving performance, reducing risk

42 Lloyd’s Register Group Review 2010

LRQA’s Business Assurance at work Sandvik Materials Technology The Swedish high-tech engineering group Sandvik Materials Technology (SMT) transferred its ISO 9001 certification to LRQA in 2001. Over the past nine years, SMT has added ISO 14001, BS EN 16001 (energy management) and subsequently OHSAS 18001, integrating those three standards into one global environmental, health and safety (EH&S) system.

Why LRQA? Because SMT is a global organisation with 8,250 employees. “We needed a certification body that could operate globally,” says Karin Östman, global process owner for SMT’s EH&S management system, “and one that understood our organisation – in Sweden and everywhere we operate.”

LRQA enables a flexible multisite approach to certification. “We have many units and a lot of issues that need to be managed,” says Anders Sjöden, SMT’s lead auditor. “Often individual sites do not have the

resources to do this themselves. LRQA’s approach means that our units can have just a single assessment which combines all of the standards – quality, environmental and health and safety.”

Besides which, Sandvik says, LRQA’s Business Assurance approach brings scientific knowledge to the audits which has helped add value to operations. “They often know local legal requirements better than the local people who don’t have such specialist knowledge,” says Håkan Sundström, SMT’s General Manager for Quality and EH&S from 2003–2008. Östman added, “With BS EN 16001, LRQA’s systematic way of looking at our energy mapping, objectives and programmes has helped us to improve our energy efficiency and at the same time save a lot of money.”

Business review / Management Systems

m anagement systems Our assessment services, partly due to our unique understanding of both local cultures and global supply chains, have helped our clients withstand the economic downturn

Industry overview

Mike James Management Systems Director

“ In LRQA’s experience, organisations that have invested in robust management systems are continuing to weather the economic storm.”

The global economic climate is still presenting challenges. Some areas of the world continue to experience difficult economic conditions while others are growing quite strongly, particularly in Asia, Central and South America. Although the global recession is far from over and there is some concern over the possibility of a double-dip recession, we certainly know a lot more about the nature of the situation than we did a year ago.

Throughout this period the demand for independent assurance services has remained strong. In LRQA’s experience, organisations that have invested in robust management systems are continuing to weather the economic storm. This reflects our experience in previous recessions. Demand for ISO 9001 (quality management systems) and OHSAS 18001 (occupational health and safety management systems) remains very positive. And although demand for ISO 14001 (environmental management systems) was relatively subdued in 2009, this is now beginning to grow, as is demand for client training services.

Climate change continues to be high on the political agenda and with the failure of last year’s COP15 Copenhagen conference to produce an international agreement on climate change policy, national governments and industry are taking action unilaterally to reduce emissions. This is resulting in an increasingly diverse range of market opportunities for greenhouse gas validation and verification.

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Mike James Management Systems Director

There is also growing interest in the area of organisational resilience with management systems being used to help organisations protect themselves from both external and internal threats. Understanding the potential impact of supply chain disruption, for example, is critical in today’s business world, and we help our clients to better manage their risks and prioritise issues. This need is driving the creation and implementation of national business continuity certification schemes such as BS 25999 (adopted within the UK and beyond) and ASIS SPC.1-2009 which is developing in the USA, while the International Organization for Standardization (ISO) is working on an international standard.

Introduction With demand for independent assurance services remaining robust, LRQA has had another good year. In addition, the help we have offered our clients to deal with the economic downturn has been reflected in very high levels of client retention – which is particularly pleasing.

This year we added the next phase of our Business Assurance methodology, which now includes help for companies with the way they manage risk. We will continue to develop the delivery of our assessment services to reflect both the needs of our clients and the innovation in management systems standards.

We have continued to deepen our collaboration with other Lloyd’s Register businesses in order to realise Group synergies.

The LRQA/Marine Centre in Piraeus, for example, is providing a single global solution to marine clients, and there have been some major contract wins in the energy sector. In transport we are beginning to build our market share in the rail sector through the International Rail Industry Standard (IRIS) scheme.

Food supply chain LRQA helps food organisations to protect their brands, and consumers, by improving the safety and sustainability of their food supply chains. Our assessors understand not only the safety issues around food but also areas such as quality, traceability and the environment.

Our assessors understand not only food safety but also areas such as quality, traceability and the environment Our activity in this sector grew significantly during 2009/10 with retailers and food manufacturers continuing to rely on LRQA to provide confidence throughout their supply chain through certification and customised audit programmes. Cargill, for example, has started to fully implement FSSC 22000 (the food safety standard that combines ISO 22000 and PAS 220) across 700 sites worldwide.

LRQA’s activity in the food sector grew significantly. Cargill, for example, has started to fully implement FSSC 22000 across 700 sites worldwide.

Climate change Our services in this area have gone from strength to strength, and we believe it is LRQA’s Business Assurance approach to climate change verification that makes the difference.

Our European Union Emissions Trading Scheme (EU ETS) verification contracts continued to be a major component of our climate change business. With aviation joining the scheme in 2010 and the possibility of maritime transport being included from 2013, the EU ETS is set to be a key service for us in the coming years. In 2009, we verified a further 130 million tonnes of carbon under the scheme, bringing our year-on-year total to approximately 550 million tonnes.

In North America, Ryerson, Master and Associates, Inc., which we acquired in 2009, continued to build on its market-leading position on verification schemes in California. We verified more than 100 million tonnes of carbon for The Climate Registry, the California Climate Action Registry and the California Air Resources Board during 2009.

There is increasing interest in FSSC 22000 and this was reflected in the participation by some of the world’s largest food companies in a series of free webinars we held on FSSC 22000 certification and what it means to organisations.

Lloyd’s Register Group Review 2010 45

Business review / Management Systems

In Asia, many governments are putting policy and physical infrastructure in place to support the transition to low-carbon economies. We have been particularly successful in growing the capacity of our Clean Development Mechanism (CDM) service and have joined several national climate change schemes including the Japanese Voluntary Emissions Trading Scheme (JV ETS), and the Tokyo Municipal Government ETS. We have also obtained accreditation for Korean ISO 14064:1 Inventory Verification, and have provided training to government and industry throughout the region as they rapidly build their greenhouse gas accounting capacity.

Worldwide, under our extended ISO 14065 (greenhouse gas validation and verification) accreditation we now can verify the carbon footprinting of products and services under the PAS 2050 standard, and airlines’ carbon data in accordance with the EU ETS.

05.30 GMT* India

Sybil Soans, Client Services Manager for LRQA India talks about improvements to the invoicing system with Concessau D’souza, Client Services Co-ordinator. *11.00 local time

11.00 GMT UK

Supply chain security and business continuity There has been a proliferation of standards and schemes as the world seeks to minimise the increasing threats to global just-in-time supply chains.

LRQA has sought to bring about a degree of harmonisation by using the ISO 28000 security management system standard as a vehicle to underpin regulatory and voluntary standards. Educating the market on the way forward in security management is vital in bringing about harmonisation. For example, we have recently delivered our new security risk assessment training course to DP World Southampton.

Sandra Gough, Customer Support Co-ordinator, talks to a client about their ISO 9001 approval.

10.00 GMT* Netherlands

Educating the market on the way forward in security management is vital for harmonisation LRQA is also accredited to certify organisations to BS 25999 – a business continuity standard which provides a framework for building organisational resilience – and offers training courses on the implementation and continuous improvement of continuity and resilience programmes.

Client training

Cor Groenveld, Global Food Safety Product Manager, takes part in many industry groups and committees including the Foundation for Food Safety as Chairman of the Board.

09.00 GMT* Greece

LRQA’s training services provide organisations with the confidence to establish and maintain their management systems.

One of our training clients is the Hoenderloo Groep in Holland.

This not-for-profit organisation provides 24-hour, on-site care for youths aged 10–18. LRQA’s trainers have worked with Hoenderloo’s internal auditors to conduct more informative interviews, directly improving internal processes. This has helped the organisation deliver on its main goal: to provide a brighter future for disadvantaged young people.

On an ISO 9001 surveillance audit Vassia Mastroyanni, Auditor, talks to the client about planned actions on the human element and how this would translate into better business performance.

03.00 GMT* China

Lead auditors, Yonggui Liang, Lingzhi Deng and Paul Qiu review a case study on how to audit a company strategy.

46 Lloyd’s Register Group Review 2010

Mike James Management Systems Director

Project highlights for 2009/10 • In 2009, LRQA launched a thought leadership report called ‘CSR in Asia, the real picture’, and during the year our Hong Kong team also verified the corporate social responsibility (CSR) report of Hong Kong & Shanghai Hotels Limited.

• LRQA has verified LINPAC Allibert’s ’Maxinest’ distribution tray against Europe’s most authoritative product carbon footprinting (PCF) specification, PAS 2050.

• LRQA has awarded confectionery manufacturer Perfetti Van Melle the SA8000:2008 Global Social Accountability Standard certificate for their operations in Holland. This standard is based on international human rights conventions that focus on improving working conditions.

Looking ahead LRQA will continue to differentiate itself from its competitors through Business Assurance, and we will be investing in promoting our revised brand identity for LRQA Business Assurance.

USA Northrop Grumman focus on quality

Opportunities for new business in climate change, particularly CDM and the EU ETS look very positive. We expect the new market for organisational resilience to grow, and we will also be looking for opportunities within the water and waste management sectors.

LRQA has served Northrop Grumman, a leading global security company, since 1993 and today certifies more than 60 Northrop Grumman sites around the world to AS9100 and ISO 9001/TickIT.

Finally, just on the horizon is the next revision of ISO 9001. The success of ISO 9001 across the whole spectrum of global organisational activity – mature markets, developing markets, global, small- and medium-sized companies and across all industries sectors – has meant that any change has to satisfy many competing needs.

Clearly, changes must meet the wishes of all stakeholders. But the overriding need is to produce changes which continue to act as a catalyst to improve the way organisations are managed.

LRQA’s Business Assurance benefits Northrop Grumman because it works with the organisation to standardise systems and creates a common process-based culture focused on quality performance. “A strong quality management system is vital to Northrop Grumman because customers rely on our products to perform flawlessly the first time and every time,” says Christopher Cool, Vice President of Quality, Safety & Mission Assurance for Northrop Grumman Aerospace Systems.

Looking to the next generation of quality management, Northrop Grumman works with schools to encourage students to pursue science and technical careers. For example, its Weightless Flights of Discovery programme has inspired tens of thousands of students by giving their teachers the opportunity to experience the exhilaration of zero gravity and bring it back to their classrooms.

Lloyd’s Register Group Review 2010 47

Business review / Around the world

Around the world

Americas

The Lloyd’s Register Group operates worldwide through a network of entities which deliver our services and products to our clients efficiently and effectively. These bodies support our mission to protect life and property and advance transportation and engineering education and research.

Paul Huber President Lloyd’s Register Americas, Inc. & Group Director of Operations

Our global operations are divided into three geographical areas: Americas; Asia; and Europe, the Middle East and Africa (EMEA). Each has an operating entity which is responsible for the overall business of the Group in that region: Lloyd’s Register Americas, Inc.; Lloyd’s Register Asia; and Lloyd’s Register EMEA. The Group’s activities in each area are tailored to suit the various local and regional markets. Different parts of the Group around the world pull together to work on major international projects.

Examples in this review include: offices in Korea and Japan and the London Research Department that worked together to produce guidance notes for IMO Type B independent tanks for gas storage and transportation (page 27); our UK and Danish offices are working on the contract for interoperability NoBo and ISA services for the installation of the European Rail Traffic Management System to the Danish railway network (page 31); the refurbishment of the North Rankin A platform involves teams in London, Aberdeen, Perth and Kuala Lumpur (page 35); and Sandvik Materials Technology (SMT) needed a certification body that could operate globally so chose LRQA for its flexible multisite approach to management systems certification (page 43).

“ Throughout every part of our Americas business, the common theme is our clients’ need to reduce and manage their levels of risk.”

Lloyd’s Register has a long history in the Americas: one of our first overseas surveyors was appointed to Canada in 1852. Today, the Group operates in 18 countries throughout North America, South America and the Caribbean.

There have been plenty of challenges and opportunities in the region in the past year, and the rapid pace of change shows few signs of slowing. However, with the range of services and technical expertise the Group offers, we are well placed to provide our clients with the right solutions to meet their specific business needs.

In the Marine sector, owners and operators have been dealing with a host of issues that have arisen as new high-tech vessel designs move from the drawing board into the real world. New systems and regulations designed to help safeguard the environment, protect seafarers’ well-being and enhance sustainability, all require a high level of crew competence. Services to support environmental protection and crew member well-being have been in particularly high demand in 2009/10. From reducing carbon dioxide emissions – especially in the wake of the COP15 Copenhagen climate change conference – to ship recycling programmes, to noise and vibration reduction, we are helping our clients find solutions to operate more sustainably and with less risk to the environment.

It was a challenging year for our Energy business but we performed admirably in the face of a difficult economic climate. In the United States, our compliance services experienced a growth of 14% in revenue over last year; in Canada, the same growth rate was an impressive 28%. We also see a number of opportunities ahead. The addition of Scandpower to the Group not only enhances our service

48 Lloyd’s Register Group Review 2010

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Americas Breakdown by business 2009/10

Breakdown by geography 2009/10

1

5

1

4 3

3

2 2

1 Marine – 40% 2 LRQA – 25% 3 Energy – 35%

1 USA – 62% 2 Canada – 17% 3 Mexico – 5% 4 Brazil – 6% 5 Other Latin America – 10%

portfolio to the power sector but also increases the risk management services we can provide throughout the energy industry. Human Engineering now has a presence in the Americas, allowing us to provide local insight on how human processes change in the face of new technologies – a service in high demand in our region.

Unfortunately, several incidents have occurred in recent months which have highlighted the high level of risk under which companies in the energy industry operate. We expect a number of regulatory and legislative changes to affect companies operating in the region.

However, because of the Group’s track record in regulatory and safety compliance verification, we are in an excellent position to help our clients deal with the implications of these events.

Despite the economic downturn, Management Systems has had a busy year in the Americas. Through the employment of a new client care programme in our US business centre, LRQA USA has increased the revenue generated by its top 50 clients by 30% over the past two years. As in the global LRQA business, we have seen increased demand for our services, especially in the food sector. These clients are turning to us for assurance that all parts of their supply chain comply with international quality standards.

This has become more challenging as supply chains have become increasingly global. We are also experiencing growth among our Central and South American clients as they are increasingly required to show compliance with international standards; LRQA Mexico, for example, has trebled its revenues over the past four years.

Lloyd’s Register ‘Best of British’ in China In September 2010, Lloyd’s Register won a prestigious British government award in recognition of its outstanding contribution to UK-China business relations. The ‘British Company of the Year’ award celebrates British organisations who best demonstrate the UK’s commitment to developing a sustainable business partnership between the UK and China. “ What I am most proud of is that this award has pitted Lloyd’s Register against the best British companies operating in China. “ To be judged to be the best against such strong competition is a huge honour. The award has to be dedicated to all Lloyd’s Register employees who have helped build a sustainable business in China. This dedication stretches back to when we first established an office in Shanghai, over 140 years ago,” said Nick Brown, Country & Marine Manager, China.

The British Business Awards promote and reward the growth and development of Sino-British trade and investment relations. The finalists, 39 leading British organisations, competed for eight different award categories. The award given to Lloyd’s Register was the event’s top prize and was sponsored by UK Trade and Investment and the UK Pavilion at the Shanghai World Expo.

Throughout every part of our Americas business, the common theme is our clients’ need to reduce and manage their levels of risk.

And regardless of which company in the Lloyd’s Register Group our clients work with, we are all committed to finding the right solutions to meet their specific operational and business needs. We will continue to invest in the technical expertise of our employees, monitor changing legislation and regulations, and contribute to the establishment of industry best practices for the safety of people, of property and of the environment – because life matters.

Lloyd’s Register Group Review 2010 49

Business review / Around the world

Asia

ASIA Breakdown by business 2009/10 4

Breakdown by geography 2009/10

1

5

1

4 3

2

3 2

1 Marine – 66% 2 LRQA – 17% 3 Energy – 13% 4 Transportation – 4%

John Rowley Director Lloyd’s Register Asia

“ We have kept a strong focus on quality and safety and, through the skill of our people across Asia, the signs are that we should have a very successful year ahead.”

1 Korea/Japan – 36% 2 Greater China – 32% 3 South East Asia – 19% 4 Australasia – 8% 5 India/Sri Lanka – 5%

Management Systems is also expanding, especially in the new and rapidly developing climate change and CDM sector. As of July 2010, the United Nations Framework on Climate Change Convention had registered over 2,300 CDM projects globally, an increase of more than 35% in one year. More than three quarters of these projects were in Asia Pacific.

Energy in Asia presents tremendous opportunities, especially in the nuclear and offshore sectors. In mainland China alone, there are 12 nuclear power stations in operation, 24 under construction and Lloyd’s Register Asia covers 15 vibrant and diverse countries that span many more in the pipeline. The Asian floating liquefied natural gas the most economically dynamic region on earth. Our Asian business (FLNG) sector is also growing rapidly and is set to be worth £4 billion has doubled in the past five years. in the next five years, making up 25% of the global market. The corresponding construction boom in floating offshore installations The past year has been tough, but looking forward to 2010/11 and (FOI) is also based in Asia, with more than 70% of the newbuild beyond, we anticipate considerable growth as we capitalise on our and conversion market based here. Our core strengths, including strong market position and expand our ever-growing portfolio those of ModuSpec and Scandpower, make us unique in the Asian of services. energy marketplace.

The Marine division dominates our business, constituting two thirds of the regional revenue, but the Asian story is not one of singlesector growth. Our Management Systems and Transportation sectors have grown substantially and rapidly while our Energy business has more than tripled in the past five years.

Over two thirds of our Asian business is centered in Greater China, Korea and Japan; these are the world’s major shipbuilding centres whilst the latter is also Asia’s largest Management Systems market.

Ships and shipbuilding remain core to our business. The worldwide boom in shipbuilding helped drive our expansion in Asia, until the 2009 shipbuilding downturn saw our Asia business run flat. However, we are now seeing an impressive rebound. In Korea and China we signed fewer than 60 ship orders during the second half of 2009. But in the first six months of 2010, we signed orders for more than 170.

50 Lloyd’s Register Group Review 2010

Our Transportation business has gone through a period of rationalisation with the focus now primarily on Greater China, where the investment in infrastructure is staggering. Total investments in new rail lines reached £30 billion in 2008 and then £60 billion in 2009. The Chinese government plans to have a state-of-the-art, 16,000-mile, high-speed rail network in place by 2020 and will spend more than £200 billion to achieve this grand aim. To stay aligned with this growth, we have focused our joint venture with the China Classification Society on the Transportation sector and have significantly expanded our service delivery capability.

Consolidation was the key for 2009/10. Revenue decreased slightly, due to the impact of the global recession and the slowdown in shipbuilding. Yet we have kept a strong focus on quality and safety and, through the skill of our people across Asia, the signs are that we should have a very successful year ahead.

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Europe, Middle East & Africa

EMEA Breakdown by business 2009/10 4

Breakdown by geography 2009/10

1

7

1

6

2 1 Marine – 45% 2 LRQA – 20% 3 Energy – 28% 4 Transportation – 7%

Paul Graaf Director Lloyd’s Register EMEA

“ While income dropped last year in the face of the global recession and the credit crunch, it should not detract from the fact that our strong performance puts us in a better position to meet the challenges ahead.”

Lloyd’s Register EMEA has offices in 47 countries covering a huge range of cultures and economies in Europe, the Middle East and Africa; it also includes Cuba, Kazakhstan, Pakistan and Russia. Our income last year fell for the first time, in the face of the credit crunch and the weakening euro. However, this should be seen in context: we had grown on average by 10% a year for each of the previous seven years. Last year was certainly challenging, and although this year the forecast growth for the eurozone is low, there are opportunities across EMEA and particularly in the Middle East/Africa area and Kazakhstan.

Our Marine business suffered a turbulent 2009/10 as overcapacity and weak demand resulted in a high level of lay-ups and scrapping.

A number of shipyards in Germany and Eastern Europe had to rely on state funding to avoid bankruptcy as orders dried up. However, the fourth quarter saw an increase in Greek owners taking advantage of weak prices to purchase new vessels. The prospects for future in-service work therefore, look encouraging. Additionally, our marine teams have been busy focusing on winning new business, and the number of clients transferring-in vessels is now on the rise.

2

5

3

4

3

1 UK & Eire – 28% 2 Western Europe – 17% 3 Central Europe – 12% 4 Nordic Area – 11% 5 Greece & East Med – 12% 6 Middle East – 11% 7 Southern Area – 9%

With the oil price stabilising between US$65–$80 a barrel, investment in this sector became more attractive so the Energy business in EMEA has seen constant demand for our services, with our main challenge being a shortage of skilled staff. We are retaining our existing contracts and gaining additional work with our major clients, despite the economic crisis putting pressure on rates. Looking forward, our joint venture in the nuclear power sector with APAVE is an exciting opportunity in a business area which will be increasingly important in the future.

For Transportation, last year was something of a watershed, with us exiting an onerous contract in the Netherlands and taking the difficult but necessary decision to close the BSL business in Germany.

Both of these decisions had a significant, short-term impact on the bottom line, but set up a much healthier and more prosperous year ahead. Government spending reviews in a number of European countries will require us to adapt ever more flexibly to the needs of the customer in the future. Transportation has begun building its business in new locations, such as Italy, Belgium and Denmark, to take advantage of new opportunities.

Management Systems continues to grow as a result of the effort of our teams across EMEA. In the Netherlands, for example, our team took an opportunity to enter the healthcare sector, and has seen its business prosper. The EMEA teams’ achievement in growing the business is even more remarkable as prices have fallen across the industry and the pressure on discretionary expenditure has hit our training sector.

Our support services have also played their part. The finance teams generated further reductions in working capital. The safety teams have been bolstered, changing the way we think and act safely every day. And HR and manager development programmes within the region are equipping our managers for the leadership challenges ahead.

Lloyd’s Register Group Review 2010 51

Finance and management / Group Finance Director’s report

g roup finance director’s report The Group has delivered another strong financial performance against a backdrop of continuing tough global economic conditions

I would like to comment on selected key numbers from the Group’s annual accounts for the year ending June 30, 2010.

As with previous reviews I am presenting data in the context of our last six years’ performance. The data for income, operating surplus and headcount are all related to continuing operations only.

Income Total Group income for the year was £806 million, down 1.7% on the previous year. While the slowdown in Marine activity contributed to a reduction in the Group’s underlying income of 6% from 2009 (on a constant exchange rates basis), Group income has been positively impacted by the continuing weakness in sterling and the acquisition of Scandpower earlier in 2010.

Alastair Marsh Group Finance Director

It is testament to the Group’s diversified service offering that over the six-year period under review, annual income growth has averaged 17%, with Marine, Energy and Management Systems all showing particularly good growth over this period. Although income this year is slightly lower than the previous year, we are still showing 36% growth in top-line revenues over a two-year period.

Operating surplus Our reported operating surplus was up significantly again this year, by 114%, to £117 million from £55 million. The income and expenditure account this year has benefited from a one-off accounting gain arising from changes to the UK pension scheme; our continued focus on controlling the Group cost base during the year has allowed the Group to maintain its operating margins despite the slight decline in income levels. Excluding one-off costs, goodwill amortisation, and foreign exchange, total costs have decreased year on year by more than the reduction in income, assisted by a reduction in the working capital provisions during the year.

The six-year normalised operating surplus trend chart shows operating surplus before charitable donations and pension costs.

The former are excluded because of the distorting effect of the variable levels of donation to the Lloyd’s Register Educational Trust and pension costs are excluded because the annual volatility in such charges also distorts underlying trends in performance. The average annual growth in operating surplus on this basis over the last five years was 17%.

52 Lloyd’s Register Group Review 2010

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Income £m

Normalised operating surplus £m 820

806

Surplus before tax

105 89

594 497 372

425

49

55

56

55

The Group’s reported surplus before tax for the year (after investment income and finance costs) was £137 million, up £44 million on the previous year. In addition to the one-off pension cost reductions, the surplus before tax benefited from an increase in investment income during the year. In particular the Group realised significant gains following a restructuring of part of its investment portfolio during the year. As reported previously, in 2008/09 the Group benefited from the surplus on disposal of its investment in Lloyd’s Register – Fairplay.

Operating cash flow

04/05 05/06 06/07 07/08 08/09 09/10

04/05 05/06 06/07 07/08 08/09 09/10

Operating cash flow £m

Headcount

Headcount

161 6,976

7,398 7,542

5,937 102

4,890

5,214

58 34 -5

-72

04/05 05/06 06/07 07/08 08/09 09/10

Income per employee £000 111 82

84

We ended 2009/10 with approximately 7,500 employees, the increase on the prior year is primarily due to the acquisition of Scandpower. Over the six-year period, we have seen headcount grow, on average, by 9% per annum, compared with the 17% growth in income. Annual income per employee has fallen slightly over the last year to £107,000 however over the six-year period we have seen an increase from £76,000 to £107,000. This equates to an average annual growth in income per head of 7% over the six-year period.

Conclusion

04/05 05/06 06/07 07/08 08/09 09/10

76

The Group’s operating cash flow was relatively stable in the current year. While further improvements in working capital levels were realised during the year, the Group spent £40 million on the acquisition of the Norwegian-based Scandpower AS in December 2009. The cost of funding the various Group pension schemes around the world continues to be a significant drain on the Group’s cash resources.

107

The reported results for the year are clearly very positive given the difficult trading conditions the Group has experienced. In many respects, the year in question has been one of consolidation after the exceptional growth reported in the previous year. We are delighted to be able to report a strong top-line performance during a period of global economic weakness. This, coupled with a continuing strong focus on cost control, has further strengthened the Group’s balance sheet and leaves the Group well positioned to look for, and take advantage of, growth and diversification opportunities in the future.

Alastair Marsh Group Finance Director

85

04/05 05/06 06/07 07/08 08/09 09/10

Lloyd’s Register Group Review 2010 53

Finance and management / 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. 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 David Moorhouse.

The members of this Board are elected by the members of Lloyd’s Register’s General Committee.

1

2

3

4

5

6

7

8

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.

1 David Moorhouse Chairman of the Board of Trustees Chairman, Lloyd’s Register Group 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 R on Henderson Chairman, Lloyd’s Register Audit Committee 5 J an Kopernicki Vice President Shipping Shell International Trading and Shipping Company 6 Søren Skou Partner, Group Executive Board Member, A.P. Møller – Mærsk A/S 7 T homas Thune Andersen Board Director of Scottish and Southern Energy, Petrofac and VKR Holdings 8 Lambros Varnavides Chairman, Lloyd’s Register Remuneration Committee Managing Director and Global Head of Shipping, The Royal Bank of Scotland

54 Lloyd’s Register Group Review 2010

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Executive Leadership Team 9 Richard Sadler Chief Executive Officer 10 Alastair Marsh Group Finance Director 11 Paul Huber President Lloyd’s Register Americas, Inc. & Group Director of Operations 9

10

11

12 Paul Graaf Director Lloyd’s Register EMEA 13 John Rowley Director Lloyd’s Register Asia 14 Tom Boardley Marine Director 15 Mike James Management Systems Director 16 Iain Light Energy Director 17 John Stansfeld Transportation Director

12

13

14

18 Estelle Clark Group Business Assurance Director 19 Jim Harrison Group Legal Director 20 Atul Hindocha Interim Group IT Director 21 Bill McQueen Group HR Director 22 Keith Povey Group Corporate Secretary 23 Richard Rowe Group Safety Director

15

16

17

24 Mark Stokes Group Communications Director 25 John Wilford Group Corporate Development Director 26 Weijie Gao China Operations Chairman

18

19

20

21

22

23

24

25

26

Lloyd’s Register Group Review 2010 55

Glossary

g lossary 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.

B BS 25999 Specifies the requirements for setting up and managing an effective business continuity management system that will enable an organisation to recover its critical activities within its recovery time objectives.

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.

Common structural rules (CSR) The International Association of Classification Societies’ CSR for tankers and bulk carriers aim to achieve the goals of more robust and safer ships.

56 Lloyd’s Register Group Review 2010

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.

Cradle-to-cradle This framework seeks to create production techniques that are not just efficient but are essentially waste free. In cradle-to-cradle production all material inputs and outputs are seen either as technical or biological nutrients.

Technical nutrients can be recycled or reused and biological nutrients composted or consumed. By contrast cradle to grave refers to a company taking responsibility for the disposal of goods it has produced, but not necessarily putting products’ constituent components back into service.

D Deadweight tonnes (dwt) The maximum weight of cargo and stores that a ship can carry.

E Emission 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 Emission Trading Scheme (EU ETS) which requires installations to monitor and report their carbon dioxide emissions and enables them to trade carbon dioxide emission ‘credits’.

End-of-pipe techniques Methods used to remove already formed contaminants from a stream of air, water, waste, product or similar. These techniques are called ‘end-of-pipe’ as they are normally implemented as a last stage of a process before the stream is disposed of or delivered.

European Rail Traffic Management System (ERTMS) The new ERTMS comprises the GSM-R radio system for speech and data communication, and the European Train Control System (automatic train protection system). ERTMS forms the basis for interoperability within Europe.

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.

www.lr.org

Celebrating 250 years of service

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.

Contents The Group in brief 250 years of service Chairman’s statement Chief Executive’s review Serving the community The Lloyd’s Register Educational Trust Focus on employees Marine Transportation Energy Management Systems Around the world Group Finance Director’s report Board of Trustees and Executive Leadership Team Glossary

02 04 10 12 15 16 18 20 28 34 42 48 52 54 56

I Independent safety assessor (ISA) ISAs objectively assess the safety aspects of a 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 10 member societies and one associate of IACS. 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.

Interoperability The ability of a system or a product to work with other systems or products without special effort.

In the European rail sector, this is made possible by the implementation of standards under the EC interoperability directives.

International Railway Industry Standard (IRIS) The IRIS is based on the ISO 9001 quality management standard with specific characteristics for the rail industry.

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 28000 The international standard that specifies the requirements for a security management system, including those aspects critical to an organisation’s management of security risk within its supply chain.

L Liquefied natural gas (LNG) Cooling natural gas to -163˚C, the temperature at which it changes from gas to liquid, creates LNG. When liquefied, the gas is reduced to 1/600th of its original volume making it economic to transport in specially designed LNG ships.

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.

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.

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.

Rules See classification above.

S 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.

O 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.

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.

Lloyd’s Register Group Review 2010 57

Lloyd’s Register Asia

Lloyd’s Register Americas, Inc.

T +44 (0)20 7709 9166 F +44 (0)20 7488 4796 E emea@lr.org

T +852 2287 9333 F +852 2526 2921 E asia@lr.org

T +1 (1)281 675 3100 F +1 (1)281 675 3139 E americas@lr.org

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Lloyd’s Register – Group Review 2010

Lloyd’s Register EMEA

Group Review 2010