Directors' Report

Translation of official report:

The Board of Directors and Chief Executive Officer of Copenhagen Malmö Port AB (CMP) hereby submit their annual report and consolidated accounts for the financial year January – December 2017.

Ownership structure, scope and type of business operations
CMP’s shares and voting rights are distributed among 20 shareholders (21). Udviklingsselskabet By & Havn in/S, Malmö City Council and Förvaltnings AB Norra Vallgatan together represent about 92% of the total number of shares and votes. During 2017 the number of owners has been reduced, by one minor shareholder, otherwise there have been no changes in ownership. 

Largest shareholders 31 December 2017

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.

The parent company is a Swedish limited company (Corp ID no. 556027-4077) with associated Danish branch (Corp ID no. 25 99 60 11). Besides the parent company and branch, there is the subsidiary, Copenhagen Malmö Port Norra Hamnen AB (Corp ID no. 559061-3963). 

Geographically, operations are conducted in the port areas in Copenhagen and Malmö. From the start of 2018, the business will also include the port areas in Visby on Gotland, where a cruise terminal was recently constructed by Region Gotland, the landowner. Operations are divided into four business areas – Cruise & Ferry, Liquid Bulk, Dry Bulk and Property, and Port & Terminal Operations, as well as Norra Hamnen (North Harbour). Operations in North Harbour comprise Container, Combi and RoRo. 

All business areas apart from North Harbour have operations in both Malmö and Copenhagen. Norra Hamnen only has operations in Malmö. CMP utilises fixed facilities such as quays, shipping lanes and buildings by agreement with Malmö City Council and Udviklingsselskabet By & Havn I/S respectively. CMP pays annual concession fees for this. These fees are based both on site-leasehold, as is the case with older facilities, and – on completion – on investments made in new facilities. The current concession agreement with the port owners expires in 2035. Discussions are being held with respective landowners about contract extensions of a further five to eight years. The contracts also regulate the conditions for moving certain terminals to new geographic areas during the contract period. Each port owner guarantees CMP at least the book value of investments which cannot be moved in the event that the lease agreements are not renewed. The guarantee applies for the respective facility provided that the port owner approves the fixed investments that CMP makes and has made. At the end of 2017 there was no investment as described above which was not guaranteed.

Business concept
CMP's business concept is to sell port, terminal and transport services. Put simply, the operation is based on CMP matching areas and activities where land and premises provide a rental income, the quay a port revenue and all other handling a handling revenue. However, it should be noted that the handling revenue is principally burdened with personnel costs and other operating costs, but also with concession fees for the area on which the work is performed. CMP helps to keep the wheels of society rolling and is a part of the transport chain which is contributing to developing and modernising Denmark and Sweden. CMP's various solutions link together land and water, as well as generate growth and prosperity for the common good. 

Significant events during the financial year
Work continued on the plan to move the container operation in Copenhagen to Ydre Nordhavn (Outer Northern Harbour), which is located about one kilometre from the present terminal. The reason for the move is the on-going urban development in Copenhagen. CMP's new container terminal will be operational no later than 2021.

Work continued on the plan to construct an additional cruise terminal in Copenhagen to meet the increasing demand with more arrivals and ever larger ships. The plan is for the terminal to be completed during 2020.

Barbara Scheel Agersnap took over as CEO and President of CMP on first September 2017. She has been Deputy CEO since 2016 and succeeded Johan Röstin, who left CMP for a position in another business. 

Development of operations, position and profits (group)
(SEK 1.000) 2017 2016
Net sales 839,451 812,136
Operating income  77,874 43,172
Profit/loss after financial deductions 56,676 31,282
Balance sheet total  1,141,047 1,038,456
Equity/assets ratio (1)  13,2% 9,5%
Return on Equity (2)  21,1% 4,6%
Average numbers of employees  347  377


Sales and profits

CMP's turnover in 2017 amounted to SEK 839.5 million (812.1), which was an increase of SEK 27.4 million compared with the previous year. Excluding exchange rate effects of SEK 11.5 million, the increase in turnover was SEK 15.8 million, which – with the removal of exchange rate effects – represents an increase of 1.9 per cent. 

The rising sales – over and above exchange rate effects – are principally explained by increased volumes within Cruise & Ferry. Turnover in this business area increased by SEK 38.5 million or 23.7 %, once exchange rate effects are deducted. The Cruise segment accounts for the bulk of the increase, which is explained by more arrivals and bigger ships with more passengers. The Port & Terminal Operations and Liquid and Dry Bulk & Property business areas had minor changes in turnover compared with 2016, which basically applied to all business segments. The North Harbour business area also displayed major, positive changes and increased its turnover by SEK 11.0 million or 14.8 %. The explanation lies in part in successes in utilising existing business opportunities, in part in the increase in the container operation. This increase was linked to the industrial dispute which took place during the summer in Port of Gothenburg.

In total, CMP handled 15.5 million tonnes of freight through the quays in 2017 (15.7), which is a decrease of 0.2 million tonnes or one per cent compared with 2016. 

The operating profit for 2017 was SEK 77.9 million (43.2). This produced an operating margin of 9.3% (5.3) and an improved operating profit of SEK 34.7 million compared with 2016. The outcome was affected by the exchange rate effect of SEK 1.9 million, which meant that the operating profit - excluding exchange rate effects - increased by SEK 32.8 million compared with 2016. The operating profit was also affected by the fact that SEK 10.0 million of concession fees in Cost of goods and services sold was reclassified and moved to interest charges among financial income and expenses. Besides this, the improved operating profit is explained by the fact that the outcome for 2016 - in distinction from 2017 - was affected by relatively major additional costs in two separate projects This applied in part to the work of finding an external operator in North Harbour, in part to the investigatory work surrounding the new container- and cruise terminals in Copenhagen. Including these additional costs, the operating profit increased by SEK 22.8 million. Besides the major project costs, the increase is also explained by a somewhat increased sales volume, effects of a better mix of services and efficiencies that were made.

The difference in net interest income/expense is due to the increased interest expense, which is attributable to reclassification of about SEK 10 million from concession cost to interest cost. Besides this, the increased interest cost is principally due to the investment in new mobile cranes in 2017.

Profit after financial items amounted to SEK 56.7 million (31.3). This was an improvement of SEK 25.4 million compared with 2016. Tax on profits for the year amounted to SEK -30.4 million (-25.3), SEK 2.2 million of which is explained by a return of deferred tax that had previously been reported in CMP North Harbour AB. The company has chosen not to report any deferred income taxes recoverable on loss carry-forward, as it is currently unlikely that the amount can be utilised within the prescribed period.

Profit for the year amounted to SEK 26.3 million (5.9), which was an increase of SEK 20.4 million.

Cash flow and Liquidity 
CMP’s cash flow from operating activities amounted to SEK 75.9 (74.3) million. The principle reasons for the change in cash flow from operating activities compared with 2016 were that:

operating profit increased by SEK 34.7 million to SEK 77.9 million (43.2).

income tax paid fell by SEK 9.2 million to SEK 27.6 million (36.8). 

working capital increased by SEK 17.6 million, which can be compared with 2016 when it fell by SEK 10.7 million - a difference in cash flow of SEK -28.2 million.

Investing activities produced an outflow of cash of SEK -37.0 (-36.1) million. No dividend was paid during the year (68.9).

Cash flow for the year totalled SEK 34.8 million (-22.7). Cash flow for the year produced cash and cash equivalents at the end of the year of SEK 167.9 (133.1) million.

Balance sheet
There has been relatively little change in the consolidated balance sheet for 2017. The balance sheet total increased by SEK 102.6 million or 9.9 % to SEK 1,141.0 million (1,038.5). On the assets side, it is principally tangible assets that have increased due to the investments made, primarily in mobile cranes. The tangible assets increased from SEK 753.0 million in 2016 to SEK 808.2 million at the end of 2017. Cash holdings have also increased by SEK 34.8 million to SEK 167.9 million.

On the liabilities side, Equity has increased to SEK 151.0 million (98.9) and long-term liabilities to 708.0 (654.4).

These changes mean that the equity/assets ratio increased from 9.5 to 13.2 per cent.

The parent company
Copenhagen Malmö Port AB is the parent company for the CMP group and is based in Malmö with a branch in Copenhagen. As mentioned previously, the operation in North Harbour in Malmö was hived off in 2016 and placed in the subsidiary Copenhagen Malmö Port Norra Hamnen AB. Otherwise, all business operations are conducted in the parent company. The bulk of the comments above therefore relate to the parent company. Turnover in the parent company during 2017 was SEK 812.2 million (807.4). 

During 2017 the shares in the subsidiary, Copenhagen Malmö Port Norra Hamnen AB, were valued, resulting in a write-down of SEK 37.0 million. The office property on Terminalgatan in Malmö has been revalued by SEK 33.0 million after an external valuation showed that the value was significantly different from the book value.

A group contribution of SEK 22.9 million has been provided to the subsidiary, CMP Norra Hamnen AB.

Profit for the year in Copenhagen Malmö Port AB amounted to SEK -8.4 million (23.4). The parent company had 302 (337) full-time employees during 2017. The annual report is ratified at the AGM on 28 May 2018. 

Copenhagen Malmö Port, 5 year summary

(SEK 1,000)  2013 (3)  2014 (3) 2015 2016 2017
Net turnover  715,363  762,690 762,122 807,442 812,212
Operating income  86,874  89,517 29,122 46,816  87,198
Profit/loss after financial deductions  88,616  90,263 29,965 47,816  43,494
Balance sheet total  549,304  631,766 636,003 603,678  672,640
Equity/assets ratio (1)  75,9%  65,9% 25,7% 19,6% 20,1%
Return on Equity (2) 22,1% 21,7% 14,2% 16,3% Neg.
Average numbers of employees 400 384 376 337  302

 

Significant events after the year-end accounts
No significant events have occurred after the year-end accounts.

Outlook
The company views the future positively. This positive outlook is based on CMP’s geographic location, the company’s purpose-built facilities and the established commercial networks. These success factors have given CMP a strong position in a number of business segments and markets. 

Significant risks and uncertainties
All business operations are associated with risks. Risks managed correctly can open up fresh opportunities and increase value creation, while risks that are badly managed can result in damage and losses. The ability to identify, evaluate and manage risks is an important part of the governance and control of CMP’s operations. The ambition is to achieve the business’s goals through properly assessed risk-taking, where certain risks can be reduced or entirely avoided.

CMP’s risks are managed and followed up systematically, including via a follow-up of the economic monthly outcomes at business segment and departmental level. The ongoing management also entails CMP analysing, expanding and improving the systems, methods and processes used in order to reduce risks. Examples of this are the annual strategy seminars with the Board of Directors, as well as forecasts, budget processes and continuous audits of internal processes and procedures. 

The business is exposed to a number of strategic and operational risks. The strategic risks are linked to CMP focusing its operations on areas that might not be in demand in the future, or investing incorrectly and jeopardising competitiveness. CMP tries to reduce these risks through broadly-based, recurrent business analyses, through continually developing the organisation and the employees, as well as through strategy discussions with the Board of Directors and other actors who provide a broader future perspective.

The management of strategic risks is focused on doing the right things. The operational risk management, on the other hand, is more about performing a particular task correctly. Operational risks are therefore focused more on processes, assets and people. 

Market risks 
CMP's business operations are exposed to market risks, including cyclical fluctuations and changed patterns of demand which can affect demand for the company's services. CMP's operations are wide-ranging and directed at many different sectors and customers. This reduces the risk that a deterioration in demand can affect significant parts of the business. The breadth of the operation also means that the effects and risks of major seasonal variations – which for example characterise the cruise industry – are diminished within CMP.

Price risk
The price risk means that the market price of CMP's services could fall, and have a negative effect on the business. This risk is managed through CMP’s services being substantially linked to contracts that extend at least one year forward in time. For long-term contractual relationships in respect of leasing quays and warehouses etc., the contracts are index-linked.

Price risks for products and services that CMP purchases primarily pertain to market risks, currency risks and interest rate risks. CMP is indirectly exposed to interest rate risks in its lease contracts via the annual indexation. Otherwise, the lease contracts run with fixed interest which in some cases is recalculated every three to five years with a limited interest rate risk. During 2017, the leases accounted for an annual cost of some SEK 200 million.

The leases for properties and sites that CMP uses are regulated. This minimises the risk of property and site owners deciding to use areas of land and properties for other purposes. The contracts are extended every five years by a further five years. This means that they are always valid for 20 - 25 years ahead. Fixed assets that are owned by CMP – and which have a longer economic service life than 20 - 25 years – are normally guaranteed by the land owner at book value at the end of the contract term.

IT risks 
Disruptions or faults in critical systems can affect CMP’s services and financial follow-up. The risk management in this area is based on CMP minimising the number of systems, using standardised systems with no adaptations and purchasing services from companies with effective systems and a high level of quality and expertise.

Personal injuries and damage to assets
CMP’s business is exposed to personal injuries and damage to assets. An example of damage to assets is if a ship was to collide with a quay or other equipment, leading to injuries to persons and/or assets and a stop in operations. CMP follows up these risks on a continuous basis, develops procedures and improves technical equipment and expertise in order to prevent accidents.

Environmental risk
CMP has an environmental permit. This permit presupposes that CMP and the company’s tenants and customers meet their undertakings. CMP continuously evaluates operations and analyses relevant risks in order to comply with the requirements and conditions in the environmental permit.

CMP has some exposure to substances that are harmful to the environment, for example, oil and chemicals. Through its own environmental policy, extensive safety procedures and continuous monitoring of its facilities, this risk is deemed to be limited. The same goes for the risk of terror attacks or similar events, where according to international regulations, CMP must comply with ISPS (The International Ship and Port Facility Security Code).

Financial risks 
CMP currently has minor interest-bearing loans, but is exposed in an equivalent way to interest rates, currency and liquidity, primarily through long lease contracts with port owners in the respective ports. CMP tries to limit this exposure through signing long lease contracts with its customers. The customer contracts thus counterbalance CMP's own exposure as far as possible.

The currency risks are primarily linked to the risk that the Danish krona will develop negatively relative to the Swedish krona. Just over half of CMP’s turnover is in Danish kronor. The risk is limited to the profit margin as the bulk of the costs for what is invoiced in Danish kronor are in the same currency.

Other significant risks are the risk of bad debt losses due to insolvency. CMP performs credit checks of customers on a continuous basis, and tries to limit outstanding accounts receivable through adapting the terms of payment. CMP often requires bank guarantees or equivalent from customers for the long lease contracts, which further limits the risks of bad debt losses. Moreover, the risks inherent in long lease contracts are limited as quays and buildings can often be used in other ways than those detailed in the actual contract.

The insurance risk means that the insurance policies that CMP has taken out do not provide protection against different types of damage. CMP has a single insurance policy, with the objective of covering as large a proportion of potential risks as possible at a reasonable cost. Risks of downtime. CMP always tries to have alternative technology and equipment available. This limits the effects of a breakdown or other incidents that can result in long periods of downtime.

Environment and quality
CMP engages with environmental issues on a continuous basis, in part through the company’s environmental policy and in part via its own environmental management system. The ISO 14001:2004 international standard has been used for a number of years to ensure systematic environmental management. A recertification was undertaken during 2015 to extend CMP’s certificate for a further three years. Environmental legislation stipulates that port operations in Sweden have a permit. CMP received its environmental permit for port operations in Malmö in 2008. Some of the facilities and land areas where CMP currently conducts operations have been polluted by past activities. The environmental conditions that apply to the period before 2001, when CMP’s operations started, are the responsibility of the respective port owners. CMP also has a certified quality management system in accordance with ISO 9001:2008. A recertification was also conducted in 2015 for this, which means that the certificate is valid for a further three years. New recertifications in accordance with the ISO standard will be conducted during 2018.

Investments 
Investments in buildings, machinery and equipment during the year amounted to SEK 36.2 (36.1) million. The investments primarily related to mechanical equipment. Besides investments on its own account, investments are also made by the respective land owner, which pays via a lease fee. 

Proposed distribution of profits
The following profits are at the disposal of the Annual General Meeting:

Retained profits, SEK 1,000 -2,400
Profit for the year, SEK 1,000 -8,441
Total, SEK 1,000 -10,841

 

The Board of Directors and CEO propose the following:

To be carried forward, SEK 1,000 -10,841
Total, SEK 1,000 -10,841

CMP's dividend policy stipulates that 25 per cent of the free equity is distributed to its shareholders in cases where the equity/assets ratio exceeds 40 per cent and it is judged that the company's general financial strength so allows. 

The Board and the Managing Director propose that no dividend is made on this occasion, motivated partly by the fact that the equity/assets ratio does not reach the dividend policy limit of 40 per cent.

For more information about the company’s results and financial position for 2017 and 2016, see the following income statement and balance sheet and additional disclosures.

 

(1) Adjusted Equity/Balance sheet total. Adjusted Equity refers to Equity + untaxed reserves with deduction for deferred tax liability.
(2) Profit for the year/Average adjusted equity.
(3) As of January 1, 2014, the company applies BFNAR 2012:1 Annual report and consolidated financial statements ("K3"). The corparative year of 2013 has been recalculated in accordance with K3. Correction of error: In the multi-year review, amounts are reported as an effect of correction of errors by retroactive application. The amounts for 2014-2014 have not been recalculated.