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 financial statements for the financial year January – December 2016. Amounts in brackets refer to 2015. The group was established during 2016. In accordance with the group's accounting principles, there are consequently no comparative figures. The parent company's figures are shown in brackets for information purposes.

Ownership structure, nature and focus of business operations

CMP’s shares and voting rights are distributed among 21 shareholders. Udviklingsselskabet By & Havn I/S, Malmö City Council and Förvaltnings AB Norra Vallgatan together represent just under 92% of the total number of shares and votes. There have been no changes in ownership during 2016.

Largest shareholders 31 December 2016

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. SE 25 99 60 11). Besides the parent company and branch, there is now also 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. During 2018 operations will also include the port area in Visby on Gotland, where a cruise terminal is currently under construction. Operations are divided into four business areas – Cruise & Ferries; Liquid Bulk, Dry Bulk and Property; Port & Terminal Operations, as well as CMP Norra Hamnen (North Harbour). Norra Hamnen consists of Container, Combi and RoRo operations, which were placed in a subsidiary in 2016. 

All business areas apart from CMP Norra Hamnen have operations in both Malmö and Copenhagen. CMP 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 in part on older facilities, in part – on completion – on investments made in new facilities. The current concession agreement with the port owners expires in 2035. During 2017 the agreements will be extended to 2040 unless a party cancels them before the end of the period of notice. The contracts also regulate the conditions for moving specified 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 if the leases 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. 

Business concept

CMP’s business concept is to sell port, terminal and transport solutions and it reads: “We create port, terminal and transport solutions across Northern Europe”. The business concept emphasises that CMP is good at creation, development and renewal – in both its internal work and in its contacts with external actors. In terms of this creation, CMP is characterised by sensitivity and the capacity to innovate and make rapid decisions. In addition, it is emphasised that CMP offers solutions, rather than services. The solutions must be wide-ranging and create clear added value for customers and business partners. The solutions also include new forms of collaboration, ideally in the form of alliances and partnerships, where CMP challenges ingrained ways of doing things and traditional industrial structures. The business concept also clarifies that CMP’s market comprises Northern Europe. Countries and markets around the Baltic Sea will be the focus of future growth and development.

Significant events during the financial year

The subsidiary CMP Norra Hamnen AB (Corp ID no. 559061-3963) was set up in September. At the same time, operations in Norra Hamnen in Malmö were moved to the new organisation. The establishment reflects CMP's ambition for an external operator to acquire and take over management of the business. The establishment of the subsidiary also contributes to increasing the focus and transparency in this part of CMP's operations. Even as a part of the CMP group, the subsidiary is deemed to have substantial prospects of improving its yield. The establishment of CMP Norra Hamnen AB made CMP a group, which has had effects, among other things, on accounting.

The decision was taken to move the container operation in Copenhagen to Ydre Nordhavn, which is located about one kilometre from the current terminal. A new facility is under construction in Ydre Nordhavn to be operational no later than 2021. 

Work started in February on the cruise terminal which Region Gotland is building in Visby. On completion, CMP will take over operation of the facility, which will start to receive cruise traffic in spring 2018.

CMP has chosen to correct errors through retroactive application in relation to reporting of certain lease contracts. Retroactive application means that the comparative year of 2015 has been recalculated for the parent company. The correction has had a significant impact on equity, accrued expenses, long-term liabilities, deferred tax assets and cost-of-sale items in the parent company. The correction has had an impact on the company's total equity capital for a total of SEK -194.3 million.

Development of operations, position and profits (group) 

(SEK '000) 2015 2016
Net turnover 762,122 812,136
Operating income 29,122 43,172
Profit/loss after financial deductions 29,965 31,282
Balance sheet total (1) 636,003 1,038,456
Equity/assets ratio (2) 25,7% 9,5%
Return on equity (3) 14,2%  4,6% 
Average numbers of employees 376   377

 

Sales and profits

CMP's turnover in 2016 amounted to SEK 812.1 million (762.1), which was SEK 50.0 million or 6.6 % higher than the previous year. If currency exchange fluctuations of SEK 6.3 million are deducted, then turnover increased by SEK 43.7 million, which is equivalent to 5.7%.

The rise in sales – besides exchange rate fluctuations – are explained by the fact that the majority of business segments displayed increases. The segments which displayed the highest growth in absolute figures were Bulk, Oil and New Cars. The change within bulk is linked to increased handling of building materials – principally gravel and stone – and also to increased storage capacity and storage activity. The growth within Oil is principally due to larger bunkering volumes in Copenhagen and Malmö, where the new SECA directive contributed to the increase. The oil price trend during 2016 has produced increased volumes within transit oil which – together with aviation fuel for Kastrup – meant that the total volumes in the business segment grew. The increased volumes of cars is linked to a growing demand in the markets for private cars in the Nordic region and in Russia. Several car manufacturers have also implemented model change programmes, and CMP has simultaneously gained new business that has increased its own market shares. In total, CMP handled 15.7 million tonnes of freight in 2016. This is a volume increase of 5.0 per cent, which also explains a large proportion of the economic increase in turnover.

The operating profit for 2016 was SEK 43.2 million (29.1). This produced an operating margin of 5.3% (3.8) and an improved operating profit of SEK 14.1 million compared with 2015. The outcome is affected by the exchange rate effect of SEK 1.4 million. The outcome is also affected by the transition to consolidated accounts, which means that SEK 12.0 million of the expenses from Cost for Goods Sold is moved down to interest expenses. This is due to certain lease contracts being classified as financial leasing. In addition, the outcome is explained by the fact that the business was able to absorb a number of additional costs during 2016. In total the additional costs are estimated to amount to about SEK 17 million, which are not attributable to volume increases or inflation. The additional costs included project expenses of about SEK 10 million in relation to the following three projects:

  • subletting of the operations in the CMP Norra Hamnen business area,

  • move of the Container operation in Copenhagen, 

  • analysis of the cruise operation's future capacity to handle large cruise ships.

The fact that CMP was able to absorb both additional expenses and other normal cost increases is primarily down to the volume increases mentioned, a better mix of service and continuous work to make more efficiencies. 
The difference in net interest income/expense is down to the increased interest expense which is attributable to reporting financial leasing in the consolidated accounts during 2016. Financial leasing entails a proportion of the lease expenses being reported in net interest income/expense instead of under cost of Goods Sold, which produces an effect 2016 of SEK -12.0 million.
Profit after financial items amounted to SEK 31.3 million (30.0). This was a change of SEK 1.3 million compared with 2015. Tax on profit for the year amounted to SEK -25.3 (-25.9) million. Profit for the year after tax amounted to SEK 5.9 million. There were 377 full-time employees in the group during 2016 (376).  

Cash flow and Liquidity

CMP’s cash flow from operating activities amounted to SEK 74.3 (57.0) million. The principle reasons for the change in cash flow compared with 2015 were that tax paid increased by SEK 12.6 million.
Investing activities produced an outflow of cash of SEK -36.1 (-36.0) million. Dividends of SEK 68.9 (66.1) million were dispersed. Thereafter cash flow for the year amounted to SEK -22.7 (-9.5) million. Cash flow for the year produced cash and cash equivalents at the end of the year of SEK 133.1 (155.8) million.

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. During September 2016 the operation in Norra Hamnen in Malmö was hived off and placed in the subsidiary, CMP Norra Hamnen AB. Otherwise, all business operations are conducted in the parent company. This means that the bulk of the comments refer to the parent company. Turnover in the parent company during 2016 was SEK 807.4 (762.1) million. Profit for the year amounted to SEK 23.4 (39.0) million. The parent company had 337 (376) full-time employees during 2016. The difference between the years is attributable to employees who moved over to the subsidiary, CMP Norra Hamnen AB.

 

The annual report is determined at the Annual General Meeting on 21 June 2017.

 
(SEK '000)  2012 (4)  2013 (4)  2014 (4) 2015 2016
Net turnover  720,465  715,363  762,690 762,122 807,442
Operating income  101,706  86,874  89,517 29,122 46,816
Profit/loss after financial deductions  104,654  88,616  90,263 29,965 47,816
Balance sheet total  531,962  549,304  631,766 636,003 603,678
Equity/assets ratio (2)  73,1%  75,9%  65,9% 25,7% 19,6%
Return on equity (3)  24,9% 22,1%  21,7%  14,2%  16,3% 
Average numbers of employees 415  400  384  376  337

 

Significant events after the year-end accounts

On May 19, 2017, CMP's CEO, Johan Röstin, announced to the Board that after eight years, he decided to leave CMP. The reason for this is that he has accepted an offer for a new challenge outside the company.

Outlook

The company views the future positively, despite stiff competition and an economic situation that remains hesitant. 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, establishing the conditions for a favourable development in coming years.

The lease contract for the bulk of the land where CMP conducts its operations is expected to be extended during 2017. The extension presupposes that the respective port owners do not choose to terminate the contract. If the agreement is not terminated, it is extended automatically for a period of five years at a time – from 2035 until 2040. During 2016 CMP decided to move the container operation in Copenhagen to Ydre Nordhavn, which is located adjacent to CMP's cruise terminal in Copenhagen. 

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 monthly 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 focussing 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, ongoing 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 focussed 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 CMP's services. CMP’s operations are wide-ranging and directed at many different sectors and customers. This reduces the risk of a deterioration in demand affecting 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. For example, this risk is managed through the fact that CMP’s services are 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. The leasing services proportion of CMP’s total income is just under 50%.

Price risks for products and services that CMP purchases primarily pertain to market risks, currency risks and interest rate risks. To a limited extent 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 years with a limited interest rate risk. During 2016 the leases accounted for an annual cost of SEK 187.5 (166) 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 asset

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 a stop in operations and injuries to persons and damage to property. CMP follows up these risks on a continuous basis, develops its 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 perform their undertakings. CMP continuously evaluates its 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 does not currently have any 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. About 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 by the fact that quays and buildings can often be used in other ways than 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 a long period of downtime.

The average number of employees in 2015 was 376 (384), which is a decrease of 1.3% compared with the year before. Out of the total number of employees, 15% were women (13.1). Short-term sick leave was 2.8% (2.6 %) and long-term sick leave 2.6% (1.8 %).

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. Port operations in Sweden are obliged to have a permit according to environmental legislation. CMP received its environmental permit for port operations in Malmö in 2008. Some of the facilities and land areas where CMP currently conducts business 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 för a further three years.

Investments

Investments in buildings, machinery and equipment during the year were SEK 36.1 (36.0) million. The investments primarily related to buildings and land. Besides investments on its own account, investments are also made by the respective land owner, which pays via a lease fee. During 2016 investments by land owners amounted to SEK 42.2 (20) million. 

Employees

The average number of employees in the group in 2016 was 377 (376), which is a increase of 0.3 % compared with the year before. Out of the total number of employees, 15% were women (15). Short-term sick leave was 2.4 % (2.8 %) and long-term sick leave 2.7 % (2.6 %). 

Proposed distribution of profits

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

Retained profits, SEK '000s -25,751
Profit for the year, SEK '000s 23,351
Total, SEK '000s -2,400

 

The Board of Directors and CEO propose the following:

To be carried forward, SEK '000s 2,400
Total, SEK '000s 2,400

In recent years, CMP has distributed 25 percent of the free equity to its shareholders. The Board and the Managing Director propose this time that no dividend is made. The proposed level is motivated partly by the fact that CMP should take into account the major investments the company faces and reported in this management report, and that the equity does not reach the dividend policy limit of 40%.

For the company's earnings and position for 2016 and 2015, refer to the following income statement and balance sheet and supplementary information.

 

(1) In accordance with the group's accounting principles, there are no comparative figures to present for the group. The comparative figures are reported for information purposes in the form of the parent company's figures. The effect of other accounting principles in the group comparet with legal entity are described in the group's report of changes in equity.
(2) Adjusted equity/Balance sheet total. Adjusted equity refers to equity + untaxed reserves with deduction for deferred tax liability.
(3) Profit for the year/Average adjusted equity.
(4) From 1 January 2014 the company applies BFNAR 2012:1 Annual report and consolidated financial statements ("K3"). The corparative year of 2013 has been converted in accordance with K3. Conversion of previous years has not taken place. Correction of error: In the multiannual review, amounts are reported as an effect of correction of errors by retroactive application. The amount for 2012-2014 have not been recalculated.