Directors Report

    Reg.no. 556027-4077

    The Board of Directors and Chief Executive Officer of Copenhagen Malmö (CMP) here by submit their Annual Report for the financial year January – December 2012.

    Group relationship, nature and focus of operations

    CMP shares and voting shares are held by 21 shareholders. Udviklingsselskabet By & Havn I/S, the City of Malmö and Förvaltnings AB Norra Vallgatan together represent approximately 92 per cent of the total number of shares and votes.

    Largest shareholders 31 Dec 2012

    Shareholder No. of shares % share
    Udviklingsselskapet By & Havn I/S (Danish reg.no. 30 82 37 02) 1,800,000 50.0%
    Malmö City Offices, City of Malmö (reg.no. 212000-1124) 989,100 27.5%
    Förvaltnings AB Norra Vallgatan (reg.no. 556669-0383) 517,500 14.4%
    Other shareholders 293,400 8.1%
    Total 3,600,000 100.0%

    Note. The equity and voting shares are identical.

    CMP’s operations are conducted through a Swedish limited company (reg.no. 556027-4077) and its branch in Denmark (reg.no. in Denmark SE 25 99 60 11). Geographically, the operations are conducted in the ports of Copenhagen and Malmö. The operations are divided into three business areas – Cruise & Ferries, Oil and Port & Terminal Operations. All business areas operate in both Malmö and Copenhagen.

    CMP uses permanent facilities in the form of quays, shipping lanes, buildings, etc under concession agreements with the Municipality of Malmö and Udviklingsselskabet By & Havn I/S. For this CMP pays annual concession fees, which are based partly on the existing older facilities and partly – upon completion – on investments that have been made and are being made in the construction of new facilities. The current concession agreements with the port owners expire in 2035. The framework for there location of certain port terminals to new geographic locations during the term of agreement is defined in the agreements.

    Business concept

    CMP’s business concept is to sell port,terminal and transport services.

    Net sales and results

    CMP’s total net sales in 2012 were SEK 725.1 million (727.0). Foreign exchange differences increased net sales by SEK 14.1 million in 2012 compared with 2011. In 2011 CMP also had non-recurring income of around SEK 16.1 million, which affects the comparability of the two years. Excluding foreign exchange differences and non-recurring income, net sales increased by SEK 28.3 million, or 4 per cent, in 2012. Excluding foreign exchange differences, all three business areas grew in 2012.

    Comparable net sales
    SEKm
    2012 2011 Change Change, %
    Net sales (reported) 725.1 727.0 -1.9 -0.3%
    Foreign exchange differences 14.1             –
               
       
    Exceptional non-recurring income             –
              
    -16.1    
    Net sales excl. exceptional items 739.2 710.9 28.3 4.0%


    The operating profit for 2012 was SEK 101.7 million (100.6). Excluding foreign exchange differences of SEK 4.6 million and non-recurring items affecting earnings – primarily the start-up and completion of Malmö’s Northern Harbour in 2011, amounting to SEK 10.1 million – the operating profit increased by SEK 15.8 million.

    The operating margin – including foreign exchange effects and non-recurring items affecting earnings, as described above – was 14.0 per cent in 2012 (13.8).

    Comparable operating profit
    SEKm

    2012

    2011

    Change

    Change, %
    Operating profit (reported)
    Operating margin (reported)
    101.7
    14.0%
    100.6
    13.8% 
    1.1 1.1%
    Foreign exchange differences
    Exceptional items affecting earnings
    4.6 -10.1    
    Operating profit excl. exceptional items
    Operating margin excl. exceptional items
    106.4
    14.4%
    90.6
    12.7%
    15.8 17.4%

     

    Net financial income in 2012 was SEK 2.9 million (5.0). The change is due to a reduction in liquid assets invested on a short-term basis.

    The profit after tax for the year was SEK 82.7 million (80.6).

    Cash flow, liquidity, etc

    CMP’s cash flow from operating activities was SEK 107.7 million (61.1). The difference between the years is explained chiefly by a repayment of SEK 28million received by CMP in 2012 from the Swedish Tax Agency, which refers to previously paid tax.

    Investing activities resulted in an outflow of cash of SEK 82.8 million (75.9). As a result, cash flow after investing activities was SEK 24.9 million (-14.8). The total dividend payment in 2012 was SEK 129.6 million (60.0). Including translation differences, etc, the cash flow for the year, totalling SEK -138.6 million (-62.2), meant that cash and cash equivalents declined – from SEK 202.1 million at year-end 2011 to SEK 88.4 million at year-end 2012.

    Earnings growth, cash flow, etc mean that CMP’s financial position is good. The equity/assets ratio, defined as adjusted equity divided by total assets, was 75.1 per cent at year-end (75.5). CMP has no interest-bearing liabilities. Adjusted equity at year-end was SEK 393.8 million (450.3).

    Significant events during and after the financial year

    The weak level of economic activity in 2012 affected CMP, although the impact was limited. The total volume of freight handled was 14.1 million tonnes (13.7), an increase of around 3 per cent. The increase is linked to the fact that several of CMP’s business segments were able to increase their volumes significantly, mainly in transit oil and cars.

    The number of cruise ship arrivals was 372(370) and the total number of passengers was 840,000 (820,000). CMP thus maintained its position as the largest cruise ship destination in the Baltic Sea region.

    In 2012 discussions were held with the Port of Helsingborg concerning closer collaboration. The discussions have continued also after the end of the financial year.

    No significant events have occurred after the end of the financial year. The Annual Report is subject to approval at Annual General Meeting on 28 May 2013.

    Outlook

    A new RoRo, combi and container terminal in the Northern Harbour opened in Malmö in 2011. This facility is gradually being expanded as new customers arrive and new businesses establish a presence.

    In 2012 CMP took over a new area of land and quays adjacent to the existing dry bulk terminal at Prøvestenen in Copenhagen. In 2014 CMP in Copenhagen will move a part of its cruise operations in Frihavnen to a new cruise ship terminal in Nordhavnen and in 2020 the current container terminal is scheduled to move to a new terminal in Nordhavnen.

    Significant investments are being made in both Malmö and Copenhagen. This means that CMP faces big challenges in the next few years, but it also creates significant opportunities for growth and new business. From 2011 and over the long term this will gradually result in increased costs in the form of concession fees for the investments. A major effort and focused planning will be needed to make optimal use of the resources during what is expected to be a period of continued weak economic activity. Thanks to already implemented savings and restructuring measures, CMP is in a good position to take advantage of new growth opportunities in the coming years.

    Significant risks and uncertainties

    The main risks and uncertainties faced by CMP are similar to those faced by comparable businesses in Sweden and other parts of northern Europe.

    CMP’s ambition is to minimize and avoid commercial risks as far as possible.

    The company currently has no interest-bearing loans, but is exposed to commercial risks mainly through long concession agreements with the port owners. CMP seeks to limit this exposure by concluding long leases with its customers.

    Price risks mainly comprise currency risk,market risk and interest risk. CMP is to a limited extent indirectly exposed to interest risk through its concession agreements, which are subject to annual index adjustment. In other respects, the concession agreements are subject to fixed interest with a very limited interest risk. In 2012 the concessions incurred a total annual expense of SEK 121 million.

    As regards market risk, i.e. the risk that the market price will be adjusted, CMP’s services are mainly linked to agreements covering periods of at least one year. For long-term contractual relationships relating to the lease of quays,warehouses or similar installations, the agreements are subject to index adjustment. These services account for approximately 50 per cent of CMP’s total income.

    As regards currency risks, the main risk is a weak performance of the Danish krone relative to the Swedish krona. Out of CMP’s total sales, roughly half is in Danish kroner. However, the risk is limited to the profit margin, as most of the costs relating to what invoiced in Danish kroner is in the same currency.

    Other significant risks include the risk of bad debts due to insolvency. CMP continuously checks the credit worthiness of its customers and seeks to limit outstanding trade receivables through restrictions in payment terms, etc. In many cases, CMP will also require a bank guarantee or equivalent security from customers that enter into long leases. The aim is to further limit the risk of bad debts. Another factor which limits the risks arising from long leases is that quays and buildings can often be used in other ways than was is provided for in a particular contract.

    CMP has a risk relating to complaints, although this risk is deemed to be limited in view of the fact that CMP provides services.

    The insurance risk consists in the risk that the policies taken out by CMP do not cover all possible damage. CMP’s policy on insurance is to cover as large a portion of all possible risks at as reasonable a cost as possible.

    The risk of a standstill exists. CMP seeks to maintain alternative equipment that can be used in place of cranes, etc, thus limiting the impact of a breakdown or other events resulting in an extended standstill.

    CMP has a certain exposure to environmentally hazardous substances such as oil and other chemicals. In view of the company’s environmental policy, extensive safety procedures and continuous monitoring of the facilities, this risk must be deemed to be low. The same applies to the risk of terrorist attacks or similar events, in respect of which CMP is required under international regulations to comply with the International Ship and Port Facility Security Code, ISPS.

    Environmentaland quality issues

    CMP works continuously on environmental issues through its environmental policy and environmental management system.

    Since a number of years CMP has been using the new ISO 14011 environmental standard as its environmental management system. The current certificate applies until December 2015.

    Port activities in Sweden require environmental permits under applicable environmental laws. CMP received an environmental permit for its port activities in Malmö in November 2009.

    Some of the facilities and areas where CMP currently operates have suffered environmental damage from previous activities. However, environmental conditions relating to the period before 2001, when CMP’s activities started, are the responsibility of the port owners.

    CMP uses a quality management system that is certified in accordance with the ISO 9011:2008 standard. This certificate also applies until December 2015.

    Investments

    Investments in buildings, machinery and equipment in 2012 were SEK 89.5 million (77.4). The investments refer mainly to work machines.

    Employees

    The average number of employees in 2012 was 401, which is 4.8 per cent less than in 2011. Out of the total number of employees, 11.5 per cent were women. Short-term sick leave was 2.5 per cent (2.3) and long-term sick leave 0.82 per cent (1.85).

    Appropriation of retained earnings

    The Annual General Meeting is asked to decide on the appropriation of the following earnings:

    Retained earnings
    129,750,000
    Profit for the year  
    82,738,000
    Total 
     212,488,000

    The Board of Directors and Chief Executive Officer proposes that a dividend be paid as follows:

    A dividend of SEK 14.75 per share is paid to the shareholders 53,100,000 
    Carriedforward 159,388,000
    Total   212,488,000

    No transfer to restricted equity is proposed.

    The Board and CEO believe the proposed dividend – which is consistent with the company’s previously adopted policy of paying a dividend of 25 per cent of the company’s non-restricted equity – is defensible in view of the equity requirements arising from the nature, scope and risks of the operations and the consolidation needs, liquidity and position of the company.

    For more information about the company’s results and financial position for 2012 and 2011, see the following income statement and balance sheet and additional disclosures.