NUNATSINNI CONNECTING GREENLAND ATTAVEQALERSITSISUUVIGUT
ANNUAL REPORT 2014 CONTENT
2 Challenges and changes 3 2014 at a glance 4 Financial highlights 5 Company details 7 Management commentary 8 Cargo volume developments 9 Performance for the year 10 Subsidiaries and associates 10 Freight rates 11 BAF/CAF 11 New vessels Jens Andersen Kuno Fencker 11 CSR CEO Chairman of the Board 11 Change of the Board of Directors and Executive Board 11 Events after the balance sheet date 12 Outlook for 2015 12 Financial risks CHALLENGES 13 Corporate Social Responsibility 19 Royal Arctic Line Group 21 Royal Arctic Linietrafik 22 Royal Arctic Havneservice AND CHANGES 22 Royal Arctic Bygdeservice Being charged with supplying are the lowest for over 10 years. volumes which is also evident 23 Royal Arctic Logistics Greenland as one’s key task is from the financial performance. As An increase in freight rates helped truly a balancing act. On the one cargo volumes tend to fluctuate 23 Associates lift revenue, but in the first six hand, freight rates should prefe- considerably over the year, the months of 2014 the recent years’ 25 Corporate Governance rably be as low as possible. On concessioned supply for Greenland decline in cargo volumes to Gre- the other, the desire for low rates is dependent on a massive capacity 30 Statement by Management enland continued. And despite the and trimmed operations must not apparatus. When the surplus capa- adjusted rates, revenue remained 31 Independent auditor’s report affect service levels and security of city is used for non-concessioned relatively low. The drop in revenue supply. cargo it has a significant impact on was to a large extent offset by 33 Financial statement earnings. In 2014, Royal Arctic Line once substantial reductions in fixed costs 34 Income statement again performed this task satisfac- which were cut by approx DKK 30m Combined with the freight rate 35 Assets torily thanks to its many talented compared to 2013. increase and cost reductions, the 36 Equity and liabilities and dedicated employees. And as increase in non-concessioned ear- The second half of 2014 saw the de- 37 Statement on changes in equity the year has demonstrated, requi- nings has handed Royal Arctic Line cline in cargo volumes made up for, 38 Cash flow statement rements for the necessary capacity a result that is deemed satisfactory and the year thus ended on a par apparatus are both a challenge and and which makes it possible to 39 Notes with volumes of the year before. 44 Accounting policies (Note 29) a strength for the Company. Over- continuously contribute to the all, cargo volumes are on a par with The Group saw positive develop- necessary investments in the 47 Market and changes i volumes 2013. The overall volumes, however, ments in non-concessioned cargo Greenlandic infrastructure.
This document is an unofficial translation of the Danish original. In the event of any inconsistencies the Danish version shall apply ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 2 ROYAL ARCTIC LINE A/S IS ALL OF GREENLANDS LINER SERVICE
OUR 745 EMPLOYEES ARE SPREAD OVER 13 HARBOURS IN GREENLAND, ON 11 VESSELS, AND IN THE GREENLANDIC BASE PORT IN AALBORG, DENMARK
TOGETHER WE ENSURE SECURITY OF SUPPLY TO THE 56.000 INHABITANTS – EVEN WHEN THE TASK IS PARTICULARLY DIFFICULT
ROYAL ARCTIC LINE COMMENCED OPERATIONS IN 1993, AND ALL SHARES ARE OWNED BY THE GOVERNMENT OF GREENLAND
IN 2014 ROYAL ARCTIC LINE SHIPPED THE EQUIVALENT OF APPROXIMATELY 60,000 20-FOOT CONTAINERS ACROSS THE ATLANTIC - AND BETWEEN TOWNS I GREENLAND
Get more facts on Royal Arctic Line and Greenland on page 47 FREIGHT VOLUMES FREIGHT VOLUMES ON DIFFERENT TOTAL REVENUE ON DIFFERENT
400.000 m3 ROUTES ROUTES Northbound 300.000 m3 Southbound Northbound 200.000 m3 Northbound Southbound Southbound 3 Internal 100.000 m Internal Internal
Project volumes Project volumes Project volumes 2010 2011 2012 2013 2014
PROFIT TOTAL INCOME TOTAL COSTS PROFIT MARGIN 800 800 12% improved by: 100 increased by: decreased by: improved by: 10% 80 600 600 8% 6% 60 400 400 4% 40 2% 20 200 200 0 dkk M 0 dkk M dkk M % point-2% 56 -20 30 0 30 0 8,8 -4% compared to 2013 2010 2011 2012 2013 2014 compared to 2013 2010 2011 2012 2013 2014 compared to 2013 2010 2011 2012 2013 2014 compared to 2013 2010 2011 2012 2013 2014
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 3 FINANCIAL HIGHLIGHTS
Developments in the Group over a five-year period can be described using the following financial highlights:
2014 2013 2012 2011 2010
DKK ’m - unless otherwise stated
Income Statement Net revenue 749 719 794 827 761
Total revenue 815 785 864 897 831
Operating profit 40 ( 24) 8 104 39
Net financials ( 4) 4 1
Profit for the year before tax 36 ( 20) 7 109 41 2014 2013 2012 2011 2010 Profit for year 24 ( 14) 6 73 29 Ratios * Dividend 0 25 0 20 0 Profit margin 5,4% ( 3,5)% 1,1% 13,0% 5,0%
Return on capital employed 4,5% ( 3,3)% 1,0% 11,2% 5,8% Balance sheet Return on equity (ROE) 4,9% ( 2,9)% 1,2% 15,4% 6,5% Balance sheet total 904 746 817 957 714 Solvency ratio 54,3% 65,9% 61,4% 53,5% 61,6% Fixed asset investments 217 119 ( 179) 292 21 Return on invested capital (ROIC) 7,4% ( 5,9)% 1,7% 21,7% 10,0% Net working capital 119 152 251 163 222 Operating asset gearing 1,3 0,9 0,8 1,2 1,2 Long-term debt 172 24 34 162 55
Equity 491 492 502 512 439 Average number of full-time employees 748 762 785 787 795
Cash flow statement Pre-tax profit per employee (DKK’000) 48 ( 27) 9 138 52 Cash flow from operating activities 75 2 55 159 100
Cash flow from investing activities ( 219) ( 118) 184 ( 290) ( 22) Revenue per employee 1,00 0,94 1,01 1,05 0,96 Cash flow from financing activities 128 ( 11) ( 148) 107 ( 10)
Increase/decrease in cash and cash equivalents ( 16) ( 127) 92 ( 24) 69 * The key figures have been compiled in accordance with the Danish Association of Financial Analysts’ (Den Danske Cash at year-end 174 190 317 225 249 Finansanalytikerforenings) “Recommendations and Key Figures 2010”.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 4 COMPANY DETAILS
Company: Royal Arctic Line A/S Aqqusinersuaq 52 Postboks 1580 3900 Nuuk Phone: +299 34 91 00 Fax: +299 32 24 50 E-mail: [email protected] Homepage: www.ral.gl
Reg. nr.: A/S 209.527
GER. nr.: 16545538
Registred in: Executive board: Nuuk, Greenland Jens Andersen, Chief Executive Officer (CEO)
Share capital: Executiv group: DKK 120m John Rasmussen, Chief Operations Officer (COO), and CEO, Royal Arctic Bygdeservice A/S Bent Ole Baunbæk, Chief Financial Officer (CFO) Ownership: Niels Clemensen, Chief Commercial Officer (CCO) The Government of Greenland, Nuuk, Greenland, 100% ownership Lars Østergaard, CEO, Royal Arctic Logistics A/S Board of Directors: Management Group: Kuno Fencker, Chairman Taitsiannguaq Olsen, Division Manager, Royal Arctic Havneservice Erik Østergaard, Vice-Chairman Tanja Nielsen Dragan Kesic, Department Head, IT Amma Knudsen Mai-Lill Ibsen Jens Boye, Department Head, Ship Management Jens Peter Berthelsen* Helena R. Kristiansen, Department Head, HR Aningo Broberg* Finn Lindberg* Jakob Strøm, Department Head, Communications
* Elected by employees in 2014 for a four-year term Auditors:
Deloitte Statsautoriseret Revisionspartnerselskab
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 5 Welcome to the digital version of Royal Arctic Line A/S’ annual report.
This PDF is interactiv, and the icons above allows you to easily navigate the PDF. And a number of highlights are active links that can guide you through the document.
In 2015, five new vessels for Royal Arctic Line A/S are delivered.
Most of the pictures in this annual report are from the Remontowa Shipyard in Gdansk, Poland, where the ships are built.
Here is one of the vessels shortly before the launch in April 2015.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 6 MANAGEMENT COMMENTARY Security of supply - even when the task is particular difficult MANAGEMENT COMMENTARY
• Revenues significantly improve particularly in the first half of the terminal in Nuuk. In the last half of compared to the year before year. The increase in freight rates 2014, Sikuki Nuuk Harbour A/S put • Total costs lowered by at 1 March 2014 has also lifted this construction out to tender. The DKK 30 ’m performance. Finally, 2014 also new container terminal is expected • Freight volumes at 2013-level saw handsome improvement in to be ready by the end of 2016. The non-concessioned earnings. Overall, expanded capacity and strongly 2014, Royal Arctic Line’s 22nd year in the increase in rates accounted for improved shipping conditions will operation, was marked by the general DKK 22m of the improvement, the be an advantage in terms of the uncertainty surrounding the devel- reduction in fixed and other costs efficiency and productivity of the opments in Greenland. In the first six accounted for DKK 25m net, whereas entire Greenlandic cargo system months of 2014, cargo volumes fell by upped earnings from non-concessio- another 5%. This decline was made ned freight accounted for DKK 9m. Taking into account the ongoing up for in the last six months of the shipbuilding programme and the year. Cargo volumes shipped to, from The subsidiaries, Royal Arctic Logi- resulting funding subject to require- and in Greenland total 741,000 cubic stics and Arctic Base Supply, made ments of financial performance, the metres for 2014 compared to 747,000 targeted efforts to reduce costs. Board of Directors recommends that cubic metres for 2013 (and 830,000 For 2014, Royal Arctic Logistics saw no dividend be distributed. for 2012). satisfactory financial performance, achieving progress despite a stagnant Cargo volume developments market. Arctic Base Supply has The total financial performance Total cargo volumes shipped to, from lowered its costs to a level that still before tax improved by approx DKK or in Greenland amount to 741,000 allows for the company to respond 56m. From a loss of DKK 20m before cubic metres for 2014 against 747,000 swiftly to any increase in activities in tax in 2013 to a profit of DKK 36m cubic metres for 2013. This adds up to the offshore sector. before tax in 2014. This profit is DKK a minor drop of 0.8%. 15-20m better than stated in the interim announcement, which is attri- In conformity with the security of Concessioned cargo volumes shipped butable to the upped cargo volumes supply requirements under the to Greenland declined by approx in the last six months and the effects concession, Royal Arctic Line’s ship- 6,000 cubic metres (1.7%), whereas of a number of efficiency measures. building programme will contribute the volume of cargo shipped from to enhancing the efficiency of the Greenland went down by approx existing infrastructure. Remontowa The financial performance is conside- 4,000 cubic metres (1.5%). Conver- Ship Building in Gdansk, Poland, is red satisfactory. sely, internal cargo volumes went up in the process of building the five by almost 4,300 cubic metres (4.2%) ships intended to replace clapped-out The Parent’s costs were regularly compared to 2013. Project cargo was ships. Expectations are that those five adjusted to the activity level, which on a par with 2013 and still accounts new ships will be delivered in 2015. led to reductions affecting the year’s for a modest percentage of total Another future element of efficiency financial performance positively, cargo volumes. enhancement is the new container
ROYALROYAL ARCTIC ARCTIC LINE ANNUALLINE ÅRSRAPPORT REPORT 20142014 p.s. 8 Performance for the year approx DKK 22m in revenue and thus Greenland of 22% (21% in 2013) and Costs for ships have decreased from also in earnings. Because the request inland transport of 10% (10% in 2013). DKK 202m for 2013 to DKK 192m for For 2014, the Royal Arctic Line Group for increased freight rates was only 2014, a decline of DKK 10m. Lower realised a profit of approx DKK 36m partially accepted, the Company bunker costs account for the highest before tax and minority interests Concessioned cargo income includes was compelled to initiate additional percentage of the decline. and a net profit of DKK 24m against oil and exchange rate margins that savings measures, including cutting 18 a pre-tax loss of DKK 20m and a net are charged regularly by permission full-time jobs, the effect of which will loss of DKK 14m for 2013. of the Government of Greenland. Costs for terminals have gone up, feed through fully in 2015. For 2014, a margin of DKK 37m was primarily as regards services related charged. to calling into ports. This positive development in the The Company also managed to Group’s financial performance is increase its activities in the non-con- attributable to several factors, but Accordingly, income from conces- For 2014, container operating costs cessioned business, entailing that very tight cost control is the greatest sioned cargo adjusted for oil and went down by approx DKK 13m to revenue within these areas went up by contributing factor in the earnings exchange rate margins comes to DKK approx DKK 25m in total. This drop is DKK 9m. improvement. Profit before tax went 523m for 2014 against DKK 456m one of the results of the investments up by approx DKK 56m, of which the for 2013. An increase of DKK 67m made in 2013 for the purpose of reduction of fixed costs accounts for As a result of the increased freight primarily attributable to the increase reducing container operating costs in approx DKK 30m alone. rates and the upped non-concessi- in freight rates and indexation of the future. oned activities, total earnings went oil and exchange rate margins. up to DKK 815m in 2014 compared The reduction in fixed costs was Sales and administrative expenses for to DKK 785m in 2013. Without these achieved thanks to a substantial Income not related to the concession 2014 decreased to DKK 79m against measures, concessioned revenue tightening of cost control, which was amounts to DKK 189m (DKK 182m DKK 87m for 2013. This decrease is would have gone down. implemented prior to 2014, for which in 2013), or 25% of revenue (25% in due to continued strict cost control reason the effects of many of these 2013). of various expense items, including cost savings fed through already in Total fixed costs have decreased expenses for new IT acquisitions, early 2014 and prior to the permission from DKK 754m in 2013 to DKK 724m Other operating income for 2014 is licences and consultants. for the increase in freight rates being in 2014, representing a decrease of DKK 66m (DKK 65m in 2013), mainly granted. approx DKK 30m. This decline in including service contributions by the For 2014, staff costs total DKK 313m costs was generally brought about Government of Greenland to Royal compared to an almost equivalent through a combination of efficiency At 1 March 2014, the Company’s Arctic Bygdeservice. DKK 314m for 2013. Even though these measures and savings, including request for permission to increase costs remain unchanged, they have cutting jobs. its freight rates was partially accep- As already mentioned, operating in fact gone down as wage increases ted. The Company asked for a 10% expenses for 2014 come to DKK determined through collective agre- increase in freight rates, 5% of which Concession-based income of DKK 724m against DKK 754m in 2013. This ements and other wage adjustments was accepted by the Government of 560m (DKK 537m in 2013) is broken decline is attributable to most cost have been cancelled out by tighter Greenland. This increase in freight down by transport to Greenland of categories. control of other staff costs. This item rates accounted for an increase of 68% (69% in 2013), transport from is also affected by a provision for the
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 9 resignation of an executive officer as Subsidiaries and associates Freight rates an amount of approx DKK 3.1m has Royal Arctic Logistics in Aalborg In February 2014, Nalakkersuisut been provided for and expensed in emerged from 2014 with a profit of (the Government of Greenland) the 2014 financial statements (see DKK 6m before tax compared to a decided to increase freight rates by changes in the Board of Directors and profit of DKK 3.6m in 2013. 5% effective from 1 March 2014. This the Executive Board). was prompted by a request made For 2014, Royal Arctic Bygdeservice in November 2013 in which Royal The item net financials also contains A/S generated a profit of DKK 0.6m. Arctic Line asked the Government realised and unrealised gains and The year has seen stable operations of Greenland to raise the freight losses on financial hedging of curren- despite continuing technical challen- rates by 10%. Due to declining cargo cies, oil, etc. In 2014, developments ges posed by the ageing ships set to volumes, the Company estimated in particularly the USD rate and oil be phased out by 2015. that an increase in freight rates or prices generated a loss of approx DKK serious deterioration of service would 4m for these items unlike the year Arctic Umiaq Line (AUL), which is be required in order to, for example, before for which a profit of DKK 4m owned 50/50 by Air Greenland meet the lender’s covenants for the was realised. and Royal Arctic Line, operates shipbuilding programme. under an agreement made with The Group’s liquid funds come to DKK the Government of Greenland on a Naalakkersuisut also decided to 174m at year-end (DKK 190m for 2013). loss guarantee effective until 2016. reassess the need for additional rate Besides the improvement in operating Accordingly, the company’s operating adjustment in the second half of cash funds, the decline in liquid funds profit for 2014 is DKK 0 since a loss of 2014 based on the perception that is due to the financial year’s conside- DKK 12.8m was covered by the loss the Company’s covenants were to be rable investments in the Company’s guarantee. honoured. In September 2014, Royal shipbuilding programme. Arctic Line filed a request for a 4.8% For Arctic Base Supply (ABS), which is increase in freight rates. The request Equity is DKK 491m at year-end 2014 owned 50/50 by Danbor and Royal was approved for commencement on (DKK 492m for 2013). Arctic Line, 2014 offered a very low 1 March 2015. activity level as expected due to Royal Arctic Line’s equity ratio is low oil exploring activities around The investment contribution rate 54.3% at year-end 2014 against 65.9% Greenland. For 2014, the company charged on behalf of the Government at year-end 2013. realised an operating loss of DKK of Greenland for any cargo shipped 0.8m after tax. to, from and in Greenland amounted to 3.1% for 2014. This contribution rate has remained unchanged since its introduction in 2011.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 10 BAF/CAF - Bunkers Adjustment In December 2014, the margin was New vessels Change of the Board of CEO of the subsidiary, Royal to have gone down to 2%, which Arctic Logistics, joined the Group’s Factor/Currency Adjustment In September 2013, Royal Arctic Line Directors and Executive Board was postponed, however, due to Executive Group. Factor contracted with the Polish shipyard, the Inatsisartut (the Parliament of At the Annual General Meeting Remontowa Shipbuilding of Gdansk, held in 2014, Kuno Fencker, Erik At 1 January 2014, the BAF/CAF were Greenland) election. This reduction In January 2014, Jette Larsen, CEO for five ships. The contract with Østergaard, Mai-Lill Ibsen and Amma 18%. will benefit the customers with a of the associate, Arctic Umiaq Line, Remontowa Shipbuilding is for a con- Knudsen were elected to the Board delayed effect. resigned from the Group’s Manage- tainer ship the size of Mary Arctica, of Directors. They replaced Martha Effective from 1 March 2014, ment. however, with some modifications, Labansen, Kristian Lennert, Ole Frie Naalakkersuisut authorised Royal The model for charging the BAF/ meaning 606 TEU (TEU=twenty-foot and Bent Østergaard. Arctic Line to index the BAF/CAF to CAF entails that fluctuations in the equivalent unit (container dimensi- In March 2014, Harald Asschenfeldt, year 2010 instead of year 2000 as oil price are reflected, in all material IT Manager, retired and was replaced ons)), two container ships of approx Employee representatives were done so far. This entailed that 10.8 respects, in the settlement with by Dragan Kesic. 108 TEU each and two small ships up for election to the Board of percentage points of the oil and the Company’s customers. After of a container capacity of approx 36 exchange rate margins were to be the indexation at 1 March 2014, the Directors in the spring of 2014. Jens TEU each. The four small ships will be Peter Berthelsen, Shipmaster, was Events after the balance sheet included in the freight rates. The BAF/ model entails that Royal Arctic Line’s used to service villages. CAF decreased similarly so that the incentive to improve the efficiency of re-elected, and Finn Lindberg and date indexation imposed no additional bunker fuel consumption has been Aningo Broberg, both machine Except for the freight rate adjust- New tonnage allows for a higher cost on customers. At the indexation, intensified significantly as Royal operators, took up a seat for the first ments referred to above, no events degree of containerisation of ship- the BAF/CAF was calculated at Arctic Line can only achieve ”own” time. They replace Mariane Hansen have occurred after the balance ping services to villages and helps to 5%. Shortly after, it went up to 6%, savings on bunker oil by reducing the and Efraim Tittussen. sheet date to this date which would ensure stable and flexible services to only to drop to 4% later that year. consumption of bunker fuel. otherwise influence the evaluation of Greenland. The new ships and their 7% In December 2014, efforts were initi- this annual report. design also enable Royal Arctic Line ated to find a successor to CEO Jens to achieve the Group’s strategic goal Andersen, who will be leaving the 6% 6% 6% 6% of developing business activities shipping company in the near future. within non-concessioned areas. The This is part of a planned and smooth delivery of ships is behind plan, and 5% 5% generational succession. expectations are that the ships will be delivered in the second half of 2015. 4% In April 2014, a number of functions March April May June July August September Oktober November December were combined in one new function, Corporate Social Developments in the BAF/CAF since the transition KMU (customer service, marketing Responsibility and development). In that connection, In 2014, Royal Arctic Line confirmed Niels Clemensen, Development its CSR efforts through its affiliation Director, was appointed Commercial with the UN Global Impact. (See page Director and moved his place of work 14 Corporate Social Responsibility of to the head office in Nuuk. Royal Arctic Line) In August 2014, Lars Østergaard,
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 11 OUTLOOK FOR 2015 Royal Arctic Line’s main activities In the first quarter of the year include transport of cargo to, and in December, the frequency from and in Greenland. The has been reduced to 9/12 days activity level is thus determined alternately between calls instead by the volumes transported, and of seven days. the earnings of Royal Arctic Line FINANCIAL RISKS reflect the economic develop- It is difficult to forecast deve ments and trading conditions lopments in Royal Arctic Line’s Royal Arctic Line’s transactions The funding of new vessels has in society. Royal Arctic Line’s services to the oil and mining are primarily denominated in been provided through loans from projections as well as political industries since such activities are Danish kroner. Whenever trade is a German bank. and financial reports published by highly dependent on price deve based on another currency, this is Naalakkersuisut, and the Financial lopments for raw materials as mainly bought on the spot market. The loan agreement includes Council’s report, Grønlands well as improved funding options several covenants stipulating, for Økonomi 2014 (Greenland and various political decisions. However, current hedging of example, that the Government economy 2014), indicate that Royal Arctic Line still has high purchases settled in foreign of Greenland owns 51% of the general activity level for expectations for these industries currencies is made periodically. Royal Arctic Line as a minimum Greenland for 2015 is on a par in the long run, but for 2015 the throughout the life of the loan. with that for 2014, however, with Company still expects a moderate The oil and exchange rate margins The loan agreement also includes the possibility of a small but need for the services offered by are used to compensate for financial covenants that are based non-lasting upswing. Royal Arctic Line. fluctuations in US dollar rates and on earnings-based financial bunker oil prices. ratios, solvency etc, among other So, Royal Arctic Line must Overall, a pre-tax profit in the indicators. continue to give high priority to range of DKK 30m to DKK 35m is Royal Arctic Line’s credit risks cost control as it is difficult to expected for 2015. include receivables and liquid At 31 December 2014, all of the strike a balance between required funds which are deposited with covenants have been complied capacity for high-quality service Positive cash flows from opera- Danish, German and Greenlandic with. and cargo volumes as that seen ting activities are also expected banks with a high credit rating. for 2014. for 2015. Royal Arctic Line A/S As for the shipbuilding contract, is estimated to have adequate Royal Arctic Line’s counterparty arrangements have been made The 2015 sailing plan is based on financial resources for operations risks comprise deposits with with the Polish shipyard’s bankers weekly calls eight months a year. for 2015. Greenlandic, Danish and German on refundment guarantees banks and, to some extent, other covering Royal Arctic Line’s financial instruments. The agree- instalments paid during the ments are entered into with major construction of the ships. banks with a high credit rating.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 12 FINANCIAL RISKS
CORPORATE SOCIAL RESPONSIBILITY CORPORATE SOCIAL RESPONSIBILITY (CSR)
Royal Arctic Line forms an important part of Greeland’s infrastructure and has a special responsibi- lity for ensuring Greenland’s security of supply. So, it is the Royal Arctic Line A/S’ ambition to add financial and social value by offering effective logistics solutions.
A difficult task
This heading applies to many fields.
It is a major challenge to ensure effective logistics solutions without a murmur. Undoubtedly, the next question in Arctic regions and security must always be the highest will be: Are those areas to be extended? Are the of priorities. This is why I am pleased that the members of sulphur emission rules to be tightened for Greenland? the International Maritime Organization (IMO) have agreed Technically this is not a problem, however, economi- on a Polar Code for Ships Operating in Polar Waters. The cally it is a challenge. And does a tightening of the Code is not directly related to Royal Arctic Line’s CSR rules ensure protection of the vulnerable environment efforts. But then again it is. Together with the authorities in the Arctic, or would other – and possibly less of Greenland and Denmark and the Danish Shipowners’ expensive – measures be more useful? This last Association, Royal Arctic Line has helped to make the Polar question is definitely one we need to look into before Code set high standards and to ensure its practicality. we embark on new rules. Finding the best solutions To me this shows that we assume responsibility for the will be an aim of Royal Arctic Line for 2015 onwards. society of which we form part. The results are likely to be criticised. Some will probably find the Code not to be This leads me to the last challenge that I will be men- restrictive enough. Others might see it as a limitation of tioning here. We must continue to focus on our CSR the development potential. Time will tell whether changes efforts. Even though we are facing certain financial are required, but I consider the Polar Code a good starting challenges as are other businesses in Greenland. point. Through our commitment to and reporting under the UN Global Compact we get a clearer picture of our Another challenge has been to prepare the Group for the business’ contribution to society. And contributing new sulphur emission rules, which are being tightened to society is an important element of our corporate worldwide, affecting us when operating in the North Sea. mission. This poses a challenge to the Greenlandic economy as the new rules come with a price. The environment must be Happy reading! Nuka Arctica arrives in Nuuk in March - with extra cargo of 600 protected. This is beyond any doubt and we obey the rules tonnes of ice on deck and container. One of many challenges one Jens Andersen – CEO faces when navigating the Arctic regions. Which is why it is a good thing that the Polar Codes will set a standard for preparation.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 14 General performance, 2012-2014 2012-2014 Risk suppliers 2012 2013 2014 2012 2013 2014
Employees 784 762 748 Number of risk suppliers identified 120 134 137 Trainees 60 65 54 Percentage of risk suppliers having signed the terms 67% 75% 85% Ships 11 11 11 The objective for 2015 is that 88% of the identified risk suppliers will have signed the CSR purchasing terms and conditions by the end of the year. Harbour terminals 14 14 14 Nautical miles sailed 464.217 378.531 358.111 M3 shipped 830.000 747.000 741.000 The Company’s ships and harbours comply with the International Ship and Port Facility Security Code (ISPC) (ISPS)
Consumption and emissions of container vessels Working enviroment on board 2012 2013 2014 2012 2013 2014
MGO 3.591 3.407 3.112 Near-misses on board 53 110 98 HFO LS 6.432 6.448 6.045 LTA (Lost Time Accidents) 7 4 3 HFO HS 18.537 18.969 18.221 Near misses are unforeseen incidents that do not result in an accident, sickness or injury, but which might as well could have. Therefore, it is important to collect data about near-misses in order to improve work processes and change dangerous environments to avoid Kilo fuel/nautical mile 75 67 67,6 occupational accidents EEOI 3,28 In 2014 there were no Lost Time Accidents on board the container ships. All The EEOI (Energy Efficiency Operational Indicator) is a voluntary index formerly known as the operational CO2 index. The EEOI was developed by IMO, and in 2013 Royal Arctic Line started reporting to the EEOI through the Danish Shipowners’ Association. So, 2014 is LTA’s were on the passengership Sarfaq Ittuk the first year for which a total EEOI figure has been calculated: 3.28 g of CO2 per tonne of cargo per nautical mile. It may still be difficult to compare this figure to those of other shipping companies as it remains subject to some uncertainty, particularly due to factors of Number of days since latest LTA per 31 December 2014 converting cubic metres of cargo into tonnes. So it may take some time before this figure can be benchmarked against the figures of other shipping companies, however, the EEOI provides a rather exact picture of the ships’ developments and performance and so the Naja Arctica 931 EEOI figure is an effective target figure, strategically speaking. Mary Arctica 736 Nuka Arctica 709 Royal Arctic Line’s general CSR policy and latest update of its CSR efforts are available at the Company’s homepage, www.ral.gl. The CSR policy also serves as the Company’s climate policy Irena Arctica 634 and human rights policy, and the other areas are supported by underlying policies such as the staff Arina Arctica 540 policy, the anti-corruption policy, etc.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 15 GOVERNANCE Board of directors Royal Arctic Line’s CSR strategy is formulated on the basis objectives, which lies with Group Management and the Board of the CSR policy and managed by our CSR Board. The CSR of Directors. Board is made up of five members of Group Management as Group Management Goals well as the chief buyer. As a main rule, the Board convenes Royal Arctic Line’s CSR policy focuses on areas that support once every three months to discuss new measures taken and the Company’s business objectives, areas that are important to CSR-Board to reconsider the importance of ongoing initiatives. Once a its stakeholders and areas in which the Company may make a year, the CSR strategy is co-ordinated together with the Board difference. This may be achieved in particular by reducing the of Directors, and reports are submitted regularly to the entire environmental effects of the Company’s operations, improving management group. safety and health at work, promoting human rights and ethical Climate and Engagement in Employee Reporting operations and by getting involved in Greenlandic communi- environment local community engagement The responsibilites are structured under the UN’s ten CSR ties. This will add value to society and to the Company. principles. Add to this the responsibility for achieving the set
Human rights At sea environment for the employees and Job satisfaction and sickness The 2014 job satisfaction survey Safety and security measures are to allow for the Company’s offices to shows that the score for the emplo- Royal Arctic Line respects inter- absence based on the International Maritime share their experience. yees’ degree of satisfaction with national human and labour rights Organization’s (IMO) International The average level of job satisfaction access to skills development is 67 and makes a continued effort to Safety Management (ISM) Code and for 2014 was 72 points on a scale points out of 100, meaning a 1 point offer their employees equal terms, The Group’s action plan for 2014, the Safety of Life at Sea (SOLAS) from 1 to 100. For 2013, the score was increase compared to 2013. A score of conditions and opportunies in this Groupwide Safety, has been updated. Convention. They are audited every 74. This decline falls within statistical 67 points is high compared to the EEI respect. Applicants having the same The ultimate target of the plan is 0 year – both internally and externally uncertainty, however, we will conti- for the transport industry (57) and on qualifications must be given the same accidents. – and workplace evaluations are nue to focus on increasing employee a par with the average cross-industry opportunity to become an employee, made regularly. satisfaction and are not satisfied with score of 67 (average generated by which is why Royal Arctic Line calls To maintain such focus, an HSEQ the score. Ennova from among the results on any interested party to apply for (Health, Safety, Environment & In order to retain focus on the effort Quality) function has been set up to of the survey of their customers in the vacant positions regardless of Sickness absence for 2014 was 4%, to minimise the risk of accidents, all form part of the Assurance Depart- Greenland). their background. Royal Arctic Line’s which is normal for the shipping ISM-certified ships must report at ment. The work of this new function *(EEI – European Employee Index – a common efforts to safeguard human rights are sector, but the absence rate is still least one near-miss a month. will relate to personal safety and European database of comparable data). supported by guidelines established somewhat lower than our target operational reliability as regards through the staff policy on how the of 2.7%. Royal Arctic Line did not No Lost Time Accidents were recor- our harbours and offices. One of the Royal Arctic Line offers the following Company intends to address equality manage to reduce the rate of sickness ded in 2014 for the Group’s cargo first activities planned for 2015 is the training opportunities: issues and combat discrimination, vic- absence for 2014. Consequently, ships, however, three were recorded security and safety day to be held timisation, harassment and violence reducing this rate will be given high • NI2 – Academic bachelor of for the passenger ship, Sarfaq Ittuk, once every year for the entire Group. at the workplace. priority in 2015. commerce which of course will be of major During this event all employees will • Construction equipment concern in 2015. The long-term be dealing with issues of security and Working environment and mechanic statistics for Sarfaq Ittuk, however, safety. In 2015, the near-miss repor- Skills development safety are quite impressive, and the ship is ting system will be implemented at Skills development forms a natural • IT administrator The employees’ safety, health and job considered a very safe place to work. our harbours and offices in order to part of the opportunities existing for • IT supporter satisfaction are key to Royal Arctic strengthen our corporate culture in the individual employee. As a wholly • Boilermaker Line’s success. This is why regular On shore this respect. owned Greenlandic enterprise, Royal measures are taken to improve the For 2014, 43 onshore work-related Arctic Line is particularly responsible • TNI – Office assistant working conditions, and a strong for contributing to the creation of injuries were reported. Employees, skills develop- • Transport/Warehouse and corporate culture forms a natural jobs in Greenland, and the Company ment and training terminal assistant manager part of Royal Arctic Line’s objectives. Five of those 14 harbours run by Royal works to increase the share of It is company policy to always make Royal Arctic Line is privileged to have • Warehouse and transport worker Arctic Line are certified under OHSAS Greenlandic managers with Royal adequate training, knowledge and skilled and committed employees, 18001 (occupational health and safety Arctic Line – for example, by giving • Shipping assistant equipment available to the emplo- and continued access to qualified management systems). the employees access to supplemen- yees to allow them to perform tasks labour is key to our business. We aim tary training and by playing an active • Ship’s mechanic in a safe and secure environment. to give our employees a meaningful role in the development of maritime Work processes are planned and • Ship’s officer work life with focus on quality, training programmes in Greenland. evaluated to ensure a safe and secure dedication and motivation. • Terminal worker
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 16 Trainees through guidelines. Finally, the correlation between particulate of principle was made as a global Company believes that competence emissions and bottom line as the measure. Royal Arctic Line has a long tradition is the most important parameter UN International Maritime Orga- for being committed to increasing the when recruiting managers. nization (IMO) has decided – and educational level of Greenlanders. The In order to maintain regular liner the EU has endorsed this – that, at comprehensive trainee and supple- service and security of supply, the 1 January 2015, any ship regardless mentary training programmes form an Climate and environment 2014 sailing plan has been very of flag or nationality may only use realiable. important part of the Company’s HR Maritime transport is the most bunker oil containing 0.1% of sulphur strategy and its responsibility for training economic and environmentally when sailing the Emission Control local labour. friendly form of commercial trans- In 2014, Royal Arctic Line’s fuel con- Area (ECA), ie a particular area in The employee turnover rate at the port, requiring less fuel per tonne sumption rose slightly to 67.6 kg per management levels of Royal Arctic the Kattegat, the North Sea, the Royal Arctic Line offers 12 different of goods shipped than transport nautical mile. In H2 in particular, fuel Line is very low, hence changing Baltic Sea and the English Channel, training programmes, and in 2014 54 by train, highway or air. Despite consumption was a bit higher than the composition of labour is a very as opposed to 1% effective in this trainees had enrolled in a programme. those advantages, it is Royal Arctic the target of 65 kg per nautical mile. protracted task. The share of women area up until 2014. This also applies Training with Royal Arctic Line must Line’s policy to reduce the negative Slow steaming is often set aside to is far below the Company’s overall to Royal Arctic Line’s ships when qualify the candidate for a career with environmental effects of the ships avoid delays, particularly in times of gender distribution statistics, par- sailing the sea north of Scotland. the shipping company and also provide and the Company’s activities. bad weather in the Atlantic Ocean. ticularly at the second management This will increase bunker oil costs a sound basis for favourable career level (including port managers, for 2015 considerably as compared opportunities with other companies. On shore captains, chief engineer officers, At sea to a situation where this legislative etc), and the employee turnover rate The harbours of Qaqortoq, Sisimiut, The shipping industry is subject to change had not come into effect. is very low at this management level Aasiaat and Nuuk are certified Diversity extensive climate and environmental However, Royal Arctic Line is as well. In 2014, Royal Arctic Line law. Royal Arctic Line would like to under ISO 14001 (environmental Pursuant to the Guidelines on Corporate compensated for this cost through has managed, through its recruit- go even further than the minimum management) and ISO 9001 (quality Governance for Public Limited Com- the oil and exchange rate margins, ment procedures, to recruit a female legal requirements in this respect management), as is the base harbour panies Owned by the Government of and so far the customers do not feel port manager from the local area. as long as it makes sense in terms of Aalborg. Greenland, Royal Arctic Line is conti- the effect of increased costs as those of business, and efforts are made to nuously focusing on its efforts to ensure margins are very low due to the low At non-management levels, the reduce the ships’ fuel consumption In 2013, the headquarters was diversity. price of oil. Company has been co-operating and optimise the Company’s general combined with Clean Greenland with Kommuneqarfik Sermersooq consumption of resources. – Green Companies. A three-year in particular on securing jobs for IMO also adopted a ballast water A statement specifying the gender distri- partnership of WWF, CSR Greenland bution and the rate of local labour has people having a hard time entering management convention stipulating Overall, such initiatives are of benefit and six Greenlandic enterprises. The been made for every management level. the labour market. Preparatory work that, in future, ballast water must be to both the environment in the form purpose of the project is to reduce Guidelines on recruitment procedures in this respect saw some difficulty, purified before discharging it back of reduced environmental effects the environmental impact of the supporting the desire for increased diver- particularly in relation to the into the sea. As a consequence, and particulate emissions and to offices over time. So far the project sity have been drawn up. The Company matching of candidates with Royal Royal Arctic Line must install ballast Arctic Line’s possibilities of creating the Company’s bottom line through has been focusing on reducing food considered setting specific targets but water treatment plants at its ships. special positions. Such co-operation lower expenses. waste, reducing the consumption decided not to as experience shows that The effective date of the ballast will continue in 2015. of electricity for lighting and the water management convention sometimes specific targets may over consumption of paper and toners for shadow the process of producing results New legislation challenges the remains to be set, but the decision
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 17 printers. The results of those efforts environmental protection. Royal Arctic The number of critical suppliers has The aim is for at least 90% of the CSR efforts for 2015 and in the remain to be determined as there is Line has identified 137 critical suppli- increased in both 2013 and 2014. employees to become aware of the long run no full comparable year available yet. ers. The target for 2014 was to have policy and to have an understanding of 80% of them accept the CSR purcha- corruption by 2015. Royal Arctic Line expects to continue Anti-corruption its strategic CSR efforts in 2015, Going forward, the Company will sing terms and conditions. That target Royal Arctic Line aims to operate in a however, the Company has realised continue its efforts to make the has been achieved and outperformed. transparent and incorruptible market, Involvement in local community that the recession in Greenland environment and quality an active both nationally and internationally. Royal Arctic Line intends to help affects prioritisation. When interests element of the employees’ day-to-day Who is to sign the purchasing terms Therefore, the Company does not the local community of which the in oil and mineral exploration peaked work. Any gains from the ISO-certi- and conditions? accept bribery, grease or any other Company forms part to develop around 2010/2011, there was a heavy fied harbours must be allocated to type of unethical business conduct. positively. Therefore, the Company demand for improving data collection the rest of the business, and the same Suppliers are considered risk offers services, competencies and and CSR reporting. Today this pres- goes for experience gained from suppliers if they hold one or more of Although the Company’s domestic sponsorships for initiatives that sure from the external environment Clean Greenland – Green Companies. the following characteristics: markets in Greenland and Denmark would be of benefit to Greenland. is not as high as back then. This does This is ensured through, for example, do not experience serious problems in not mean that the efforts to strengt- the HSEQ function and the environ- • They are strategic suppliers from which the Company purchases this respect, the development strategy Royal Arctic Line’s sponsorships hen the society of which Royal Arctic mental committee set up by the essential services/goods, or on also extends to new markets and new primarily comprise free freightage for Line forms part have been given up. headquarters. which the Company depends in partnerships with players in industries the lines operated by the Company However, when the external pressure some way; where corruption may occur. and, in exceptional cases, financial decreases there is a considerable risk Suppliers and business partners support. The Company sponsors both that attention does so too. Royal Arctic Line is interested in • They operate in critical countries very small events and large events, or industries – such as the oil Royal Arctic Line has adopted an influencing its suppliers and business industry; anti-corruption policy to tighten and every application is considered In 2013, Royal Arctic Line achieved partners to deal with environmental, in-house rules, control mechanisms by its Sponsorship Committee that a very important goal: participation social and ethical issues in a syste- • They supply products that and audit work to ensure that the Com- convenes once a month. Moreover, in the UN Global Compact. With matic and structured manner. This may affect the environment or pany’s activities are always ethical. All the Company strives to increase the the participation, a new framework is why the Company is involved in safety at work – such as bunker employees have access through the level of involvement in long-term has been laid down and now strong dialogue and attaches importance oil, pallets, chemicals or work Group’s intranet to the policy and a partnerships because a targeted efforts must be made to be even to requirements in order to promote clothes; reporting schedule for eg the receipt effort is expected to have more effect more compliant in this respect. sustainability – also beyond our own and handing out of presents. on the community as a whole. business. • They supply products carrying In areas in which the Group has the company logo - such as The anti-corruption policy is based on In addition, Royal Arctic Line performed very well, such as supplier merchandise - that may affect the The suppliers that Royal Arctic Line co-operates with a wide range of management, work must focus on Company’s reputation. a best practice edition, which was then asks to sign the Company’s purchasing adapted to the Company after a series trade associations and interest ensuring continued success. In areas terms and conditions commit to groups to promote sustainability in in which efforts made were not as Suppliers having one or more of of employee workshops. Prior to the complying with the UN conventions the shipping industry and in society successful as originally hoped for, those characteristics are included in adoption of the Group’s final anti-cor- on child labour, human rights, workers’ the gross list of suppliers that, based ruption policy, 11% of the employees at large. such as data collection, focus needs rights, anti-corruption and the Rio on a risk assessment, should sign participated in workshops. to be increased in 2015. Convention on sustainability and the purchasing terms.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 18 THE ROYAL ARCTIC GROUP Royal Arctic Line A/S Nuuk
Arctic Base Supply A/S Arctic Umiaq Line A/S Suliffik A/S Royal Arctic Logistics A/S Royal Arctic Bygdeservice A/S 50%, Nuuk 50%, Nuuk 30,3%, Nuuk 100%, Aalborg 100%, Nuuk (Associated company) (Associated company) (Associated company)
Aalborg Stevedore Nordjysk Kombi Terminal A/S Aalborg Toldoplag A/S Company A/S 50%, Aalborg 40%, Aalborg 67%, Aalborg (Associated company) (Associated company)
The Royal Arctic Line Group consists of a number of divisions, subsidiaries and associates. The with focus being on invoicing in 2014 to the effect that today 95% of invoices are electronic against divisions form part of the Parent, Royal Arctic Line A/S. 70% in January 2014.
In 2014, the Group had an average of 748 employees against 762 in 2013. Royal Arctic Line has For Royal Arctic Line, the results of the most recent customer satisfaction survey shows a modest 220 maritime employees and 11 maritime trainees. On shore, the Group employs 514 people at 14 increase in small business operators, which also applies to major business operators. Also, the level locations in Greenland and Denmark, and 43 of them are trainees. of satisfaction remains high for private customers.
The revenue figures shown in the following text about the group enterprises and divisions may Still, the highest level of satisfaction is seen for private customers. For this group of customers, the include intra-group sales which have been eliminated in the annual report. most recent survey shows an overall satisfaction score of 5.6 on a scale from 1 to 7. This average equals those of 2010 and 2012. Customer focus For minor corporate customers, the average overall satisfaction score rose from 4.9 to 5.2. In 2014, Royal Arctic Line developed a new staff function by combining several functions. KMU (Customer Service, Marketing and Development) is overall responsible for all measures directed at customers, including the continuation of the digitalisation of communication with the customers, For major corporate customers, an average increase from 4.6 to 4.8 was seen for the overall level of satisfaction.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 20 DIVISIONS ROYAL ARCTIC LINIETRAFIK the most important instruments Services for managing costs of the shipping Besides the obligations under the company, for which reason the prepa- This division is responsible for the concession, the division also offers ration of the plan focuses on capacity seaborne traffic between Denmark, turn-around of trawlers, passenger utilisation, bunker oil consumption Iceland and a number of ports in ships and cruise ships. The division and emissions, nautical miles sailed Europe, North America, Canada and is working closely with Royal Arctic and limitations related to infrastruc- Greenland and among the towns in Base Supply and Royal Arctic ture and ice. Greenland. Logistics to develop services in these business areas. The division’s field of responsibility Outlook for 2015 also extends to the allocation of The Company’s shipbuilding pro- Certification ships and the container fleet plus the gramme will remain a considerable In 2012, the harbours of Nuuk, technical operation and maintenance and extraordinary task to perform Sisimiut, Aasiaat and Qaqortoq were of the Group’s ships and the construc- in 2015. Five ships will be built in certified under ISO 9001 (quality tion of new ships. total and the receipt, phasing-in and management), ISO 14001 (environ- phasing-out of older ships will require mental management) and OHSAS The division had an average of 199 major resources on the part of Royal 18001 (occupational health and safety employees in 2014 (2013: 196) of Arctic Linietrafik and of Royal Arctic management). which 163 were maritime employees Line as a whole throughout 2015. (2013: 163). The number of maritime employees has gone up and so has Those four harbours are subject to the number of employees involved regular audit. in the operation of ships, which is attributable to the shipbuilding Outlook for 2015 programme. The supply and phasing-in of new ROYAL ARCTIC HAVNESERVICE tonnage will have a major impact on Master schedule This division operates harbour, the staff of Royal Arctic Havneservice Every autumn, Royal Arctic Linietrafik cargo and container terminals and as the working processes will be prepares the master schedule for the discharges the local port authority in changed for many harbours. Further, coming year, which is then submitted 13 Greenlandic towns on behalf of the the staff will be handling an impor- to major customers for consultation. Government of Greenland. In these tant element of the daily contact with The customer’s specific wishes and places, the division also supervises the shipping company’s customers needs are taken into consideration the harbour and coastal lighthouses. in Greenland. To ensure optimum insofar as is possible when determi- satisfaction of customers’ needs, ning the route structure. In 2014, Royal Arctic Havneservice Royal Arctic Havneservice focuses on employed an average of 246 staff developing the skills of its staff. The master schedule is also one of (2013: 258).
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 21 SUBSIDIARIES
ROYAL ARCTIC BYGDESERVICE contribution by the Government of Current fleet New fleet Outlook for 2015 Greenland. In 2014, the company This subsidiary is responsible for Royal Arctic Bygdeservice owns four Royal Arctic Bygdeservice is planning 2015 will be an interesting and chal- employed 25 people on average, transporting cargo to, from and settlement ships and, during peak partial containerisation of the village lenging year for Royal Arctic Bygde- of which 24 were maritime staff among the settlements of Greenland. season, charters a mixed-cargo ship. service when two new ships are service. A new fleet will be phased in employed with Royal Arctic Line The task is based on a service handed over to Royal Arctic Line. The while the old one is being phased out. (2013: 24 employees, of which 24 contract with the Government of Those four settlement ships are two smallest of the new ships will have Also, the training programme that were maritime staff). Ship manage- Greenland. In ice-free areas, cargo is relatively old. The current mainten- a capacity of approx 36 TEU, whereas has been in place for several years ment, crew, accounting assistance transported to the settlements every ance of the ships entails heavy costs, the ships in the medium class will have now will continue to exist in order and IT support are carried out two weeks. because, among other things, spare a capacity of approx 108 TEU. The new to prepare as many staff as possible according to the service contract with parts usually have to be specially ships’ design will allow for a greater for the tasks lying ahead and, in Royal Arctic Line. The company earned revenue of DKK made due to the age of the ships. level of containerisation than today particular, new legal requirements on 68.3m for 2014 (2013: DKK 67.6m). Of without compromising on flexibility in the staffing of new ships. . this, DKK 61.6m represents a service respect of minor cargo volumes
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 22 ROYAL ARCTIC LOGISTICS company is ISPS-approved (Internati- onal Ship and Port Facility Security). This subsidiary attends to Royal The company is also authorised by Arctic Line’s interests in Denmark, the Danish Veterinary and Food operating the liner and harbour Administration to store and handle agency and offering shipping services refrigerated and frozen foods. at the base harbour of Aalborg. It also offers shipping services in Greenland through its harbour agency there. The Forwarding company operates a modern harbour, The company offers all forms of cargo and container terminal in Port transport services in free competition of Aalborg East. Royal Arctic Logistics with other providers. Royal Arctic owns 67% of Aalborg Stevedore Logistics’ primary forwarding market Company, which performs stevedore is Greenland, and services are offered tasks not related to the Greenland at 13 Greenlandic harbours in co-ope- traffic. ration with Royal Arctic Havneservice.
In 2014, the company employed an Aside from forwarding services, this average of 170 staff (2013: 177). division of Royal Arctic Logistics also offers logistics services to companies Profit for the year with special requirements, including trawler service, offshore, storage The company earned revenue of DKK hotel and distribution services. The 222m for 2014 (2013: DKK 218m). company also serves as harbour agent to exploration ships and the The strategy of focusing particularly majority of the cruise agencies that on costs, adjustment of working call at Greenland. processes etc helps to improve the company. Pre-tax profit for 2014 is DKK 6.0m against one of DKK 3.6m Outlook for 2015 for 2013. The activity level for 2015 is expected to be on a par with that for 2014. Certifications Therefore, the strategy to further Royal Arctic Logistics is certified for increase the efficiency of the quality management (ISO 9001), company and to improve the business environmental management (ISO foundation through intensified sales 14001) and health and safety manage- efforts will be maintained. ment (OHSAS 18001). Moreover, the
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 23 Arctic Base Supply Result out according to the service contract with Royal Arctic Line. Royal Arctic Line and Danbor each The company realised a pre-tax own 50% of Arctic Base Supply A/S. loss of DKK 0.8m for 2014 against a The company was established on pre-tax profit of DKK 2.7m for 2013. In 2014, Sarfaq Ittuk had an average 1 January 2010 to combine the two of 33 crew members, who are emplo- yed by Royal Arctic Line. parents’ special skills within ope Outlook for 2015 rations in Greenland and supply to No licences for drilling in Greenland the offshore industry. The object of Outlook for 2015 were granted for 2015, and therefore the company is to render the logistics Arctic Base Supply A/S’ activity level Recent years have shown that it is support services to the oil and gas is expected to be on a par with that impossible to carry on passenger industries and related services – both for 2014. transport services on purely commer- onshore and offshore – primarily cial terms, and the company relies on in the Arctic and particularly in a loss guarantee by the Government Greenland and in the territorial of Greenland, which the company waters of Greenland. expects to take advantage of in 2015 Arctic Umiaq Line as well. The company had an average of 1 full- Arctic Umiaq Line A/S is 50% owned time employee in 2014, but in 2013 by Royal Arctic Line and 50% by Air the company employed 4 employees. Greenland. Following a few years of Due to little activity in 2014, the turbulence, an agreement on loss Other associates organisation was adjusted to the guarantee has been concluded with activity level. the Government of Greenland for the In addition, the Royal Arctic Line period 2012-2016. Group holds investments in three The market small associates, Suliffik, Nordjysk Kombi Terminal og Aalborg Toldop- The company was founded in the In 2014, ABS signed a two-year lag. None of them are considered autumn of 2006 to acquire and contract with Greenland Oil Spill significant to group operations. Response A/S on the storage and operate the passenger ship, Sarfaq technical maintenance of equipment Ittuk. Sarfaq Ittuk services the west for reducing oil spill near Greenland. coast line between Narsaq and Ilulissat. The majority of passen- gers are local travellers, but the No exploratory drilling activities tourist segment is also serviced. were carried out near Greenland in Arctic Umiaq Line has four onshore 2014, only some seismic surveys were employees. made.
Ship management, crew, accounting assistance and IT support are carried
ROYALROYAL ARCTIC ARCTIC LINE ANNUALLINE ÅRSRAPPORT REPORT 20142014 p.s. 24 CORPORATE GOVERNANCE CORPORATE GOVERNANCE IN ROYAL ARCTIC LINE
In 2012, Naalakkersuisut (the shareholder’s representatives, and available from the Royal Arctic Line Government of Greenland) any major decision is submitted to homepage. Any other information that published its Guidelines on such representatives for commens the Danish Business Authority may prior to implementation. Finally, receive will also be posted on ral.gl. Corporate Governance for the shareholder receives quarterly Public Limited Companies reports and financial highlights from In December 2014, the Board of Owned by the Government of Royal Arctic Line. Directors adopted an updated com- Greenland (“Retningslinjer for munication policy, which establishes god selskabsledelse i de selv- Stakeholders’ role and the framework and actions plans for styreejede aktieselskaber”). significance to the Company how the Company must communicate with its shareholders, customers and as well as CSR In this respect, Royal Arctic employees in accordance with the Line has drawn up a detailed Royal Arctic Line’s strategy, which has Guidelines on Corporate Governance report that is available from been drawn up by the Board of Di for Public Limited Companies Owned the Company’s homepage, rectors and the Executive Board, sets by the Government of Greenland. objectives regarding the customers, www.ral.gl the employees and the shareholder. The Board of Directors’ tasks The Board of Directors follows up on and responsibilities Shareholder’s role and the objectives through satisfaction surveys involving customers and The Board of Directors’ tasks and interaction with Management employees, respectively, and through responsibilities are specified in the The Board of Directors and the shareholder meetings. Please refer to Board’s Rules of Procedure, updated Executive Board of Royal Arctic pages 16 and 20 for further informa- in 2013 with a view to aligning them Line supports active ownership, for tion about such satisfaction surveys. with the Guidelines on Corporate which reason there is close dialogue Governance for Public Limited Com- between the Company and the share- The Board of Directors has adopted panies Owned by the Government of holder’s representatives, Naalakker- Royal Arctic Line’s CSR strategy. Please Greenland, and they are as follows: suisut and the Ministry of Housing, refer to pages 14-18 for further informa- Building and Infrastructure. Share- tion about the objectives for and results • Inform the shareholder about any holder meetings are held at which of the Company’s CSR efforts. significant estimated and realised the Chairman informs the attendants changes about important developments or Openness and transparency changes in financial results and about • Appoint a vice-chairman from matters that may have a material Annual reports, interim reports, the among its key members at the first effect on society or economics. Rules of Procedure for the Board of Directors’ meeting Directors, the Nomination Committee’s Freight rates and the master sailing and the Remuneration Committee’s • Review the financial statements plan are approved once a year by the respective mandate, the remuneration and the preliminary announcement policy and the stakeholder policy are of financial statements
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 26 ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 27 • Approve the budget and forecasts Board of Directors and four directors. homepage, www.ral.gl. investments are also presented to the for the following year to be presen- The employees of Royal Arctic Line Board of Directors. ted as part of the interim financial will then elect three employees for The Executive Board is remunerated statements the Board of Directors. In spring 2014, pursuant to the remuneration policy. Risk management and employees were elected as Board The remuneration including pension internal control • Make sure that long-form audit members for a four-year term. contributions is evident from the reports are presented and sign annual report and is considered consi- Ledelsen vurderer de driftsmæssige them Pursuant to the Rules of Procedure for stent with market terms. The members Management evaluates the operating Royal Arctic Line’s Board of Directors, of the Executive Board are employed risks regularly, and a monthly state- • Consider the organisational the Board of Directors convenes for a fixed term, and their contracts ment is presented to the members structure of the Company at least four times a year as a minimum. The contain no termination benefits or of the Board of Directors. Strategic once a year; including in particular Rules of Procedure also ensure that bonus plans. risks are identified based on a yearly the organisation of accounting the Board of Directors acts indepen- review, and market risks in the core functions and their control business were minimised as a result dently of special interests. The remuneration of the Board of procedures of the concession. Directors follows the remuneration • Manage financial and business The Board of Directors regularly policy defined by the Government risks conducts a self-evaluation relating of Greenland. The Chairman of the Company auditors to its overall competencies, any Company’s Board of Directors is paid The Board of Directors evaluates the • Set overall strategic targets training requirements, co-operation DKK 350,000 per year, the Vice-Chair- independency and competency of together with the Executive Board between the directors themselves man is paid DKK 175,000 and the the auditors as a basis for the Annual and co-operation with the Executive remaining Board members each General Meeting’s considerations • Review insurance taken out by the Board. The evaluation is made with receive DKK 100,000 per year. for appointment of auditors. The Company once a year, including the assistance of an external consul- terms of the audit engagements and Management’s liability insurance tant, and the results are presented to Financial reporting remuneration are addressed at least the shareholder. once annually at a Board meeting. Pursuant to the Board of Directors’ Remuneration and engagements are • Review the Company’s CSR and Rules of Procedure, the Board of negotiated by the Executive Board, communications strategies and Remuneration of Directors holds an annual meeting to policies but are submitted to the Board of Management discuss financial reporting matters. Directors for approval or rejection. The Board of Directors of Royal At such meeting, the annual report • Evaluate the Board of Directors Arctic Line has adopted a remune- including a draft auditor’s report is and the Executive Board Having completed a tendering ration policy including guidelines presented to the Board of Directors process for Royal Arctic Line’s audit on the remuneration of the Board for approval. The Board of Directors engagements, the provider of audit Composition and organisation of Directors, the Executive Board, is also presented with monthly services was appointed at Royal of the Board of Directors highly influential staff members reports, interim financial statements Arctic Line’s Annual General Meeting and employees performing control and forecasts in addition to adop- Royal Arctic Line is wholly owned by held on 6 May 2014. the Government of Greenland, which functions. The remuneration policy ting the budget. The budget and will appoint the chairman of the is available from Royal Arctic Line’s budget control procedures for major
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 28 STATEMENTS STATEMENT BY MANAGEMENT ON THE ANNUAL REPORT
The Board of Directors and the Executive Board have today considered and approved the annual report of Royal Arctic Line A/S for the financial year 1 January to 31 December 2014.
The annual report is presented in accordance with the Greenlandic Financial Statements Act.
We consider the accounting policies applied to be appropriate for the annual report to provide a true and fair view of the Group’s and the Parent’s financial position and of the results of their operations.
We recommend the annual report for adoption at the Annual General Meeting
Copenhagen, 25 March 2015
EXECUTIVE BOARD BOARD OF DIRECTORS
Jens Andersen Kuno Fencker Erik Østergaard Tanja Nielsen Amma Knudsen CEO Chairman Vice-Chairman
Mai-Lill Ibsen Jens Peter Berthelsen Finn Lindberg Aningo Broberg
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 30 INDEPENDENT AUDITOR’S REPORT
To the shareholder of Royal Arctic Line A/S An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the annual report. The procedures selected depend on We have audited the annual report of Royal Arctic Line A/S for the financial year 1 the auditor’s judgment, including the assessment of the risks of material misstate- January to 31 December 2014, which comprises the statement by Management on ment of the annual report, whether due to fraud or error. In making those risk asses- the annual report, the management commentary, income statement, balance sheet, sments, the auditor considers internal control relevant to the entity’s preparation of statement of changes in equity, cash flow statement and notes of the Group as well an annual report that gives a true and fair view in order to design audit procedures as the Parent. The annual report is prepared in accordance with the Greenlandic that are appropriate in the circumstances, but not for the purposes of expressing an Financial Statements Act. opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness Management’s responsibility for the annual report of accounting estimates made by Management, as well as the overall presentation Management is responsible for the preparation of an annual report that gives true of the annual report. and fair view in accordance with the Greenlandic Financial Statements Act and for such internal control as Management determines is necessary to enable the We believe that the audit evidence we have obtained is sufficient and appropriate preparation of an annual report that is free from material misstatement, whether to provide a basis for our opinion. due to fraud or error. Our audit has not resulted in any qualification. Auditor’s responsibility Our responsibility is to express an opinion on the annual report based on our audit. Opinion We conducted our audit in accordance with International Standards on Auditing In our opinion, the annual report gives a true and fair view of the Group’s and the and additional requirements under Greenlandic audit regulation. This requires that Parent’s financial position at 31 December 2014 and of the results of their operations we comply with ethical requirements and plan and perform the audit to obtain and cash flows for the financial year 1 January to 31 December 2014 in accordance reasonable assurance about whether the annual report is free from material with the Greenlandic Financial Statements Act. misstatement.
Copenhagen, 25 March 2015
Deloitte
Statsautoriseret Revisionspartnerselskab
Claus Bech Kim Mücke
State Authorised Public Accountant State Authorised Public Accountant
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 31
FINANCIAL STATEMENTS INCOME STATEMENT 2014
Royal Arctic Line A/S Royal Arctic Group DKK m 2014 2013 2014 2013
Revenue Income from concessioned cargo 554.300 532.735 560.242 537.376 Income from non-concessioned cargo 108.377 99.669 188.901 181.700 Net revenue 662.677 632.404 749.143 719.076 Other operating income 4.653 4.596 66.179 65.479 1 Total income 667.330 637.000 815.322 784.555
Expenditures 2 Cargo-related expenditures ( 31.419) ( 31.043) ( 51.101) ( 55.059) Gross profit 635.911 605.957 764.221 729.496
Ships ( 163.370) ( 170.234) ( 191.890) ( 202.008) Terminals ( 108.764) ( 107.832) ( 67.543) ( 63.205) Container operations ( 46.218) ( 59.366) ( 24.993) ( 37.522) Sales and administration ( 34.331) ( 42.296) ( 78.542) ( 86.650) 3 Staff costs ( 209.484) ( 210.923) ( 313.244) ( 314.053) 4 Amortisation, depreciation and impairment losses on fixed assets ( 38.982) ( 43.332) ( 47.552) ( 50.880) Other operating expenditures 0 629 0 629 Total expenditures ( 601.149) ( 633.354) ( 723.764) ( 753.689)
Operating profit 34.762 ( 27.397) 40.457 ( 24.193)
5 Income from investments in affiliated companies, after tax 4.176 2.895 0 0 5 Income from investments in associated companies, after tax ( 175) ( 825) ( 179) ( 715)
Earnings before income and taxation (EBIT) 38.763 ( 25.327) 40.278 ( 24.908)
Financials 6 Income from financials 3.267 7.453 3.226 7.431 7 Expenditures related to financials ( 7.387) ( 2.974) ( 7.359) ( 3.016) Profit for the year before tax 34.643 ( 20.848) 36.145 ( 20.493)
Tax Proposed distribution of profit 8 Tax on profit for the year ( 10.552) 6.575 ( 12.505) 5.870 Proposed dividend for the year 0 25.000 Transfer to reserve for net revalua- Profit for the year 24.091 ( 14.273) 23.640 ( 14.623) tion according to the equity method 2.402 2.070
Minority shareholders' share of profits 0 0 451 350 Retained earnings 21.689 ( 41.343) Total 24.091 ( 14.273) Profit for the year 24.091 ( 14.273) 24.091 ( 14.273)
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 34 ASSETS at. 31 December 2014
Royal Arctic Line A/S Royal Arctic Group DKK m 2014 2013 2014 2013
Fixed assets Intangible assets Goodwill on consolidation 0 0 0 163 9 Total intangible assets 0 0 0 163
Property, plant and equipment Ships 103.490 115.050 103.490 115.050 Buildings 77.972 75.254 83.367 81.488 Transport equipment, harbour boats, machinery and fixtures 58.300 79.634 88.435 109.700 Assets under construction 337.121 133.317 337.121 133.317 10 Total property, plant and equipment 576.883 403.255 612.413 439.555
Fixed asset investments Investments in group enterprises 52.521 49.946 0 0 Investments in associates 8.618 8.793 10.428 10.607 Receivables from associates 2.000 3.000 2.000 3.000 Securities 4.638 4.788 4.639 4.789 11 Total fixed asset investments 67.777 66.527 17.067 18.396
Total fixed assets 644.660 469.782 629.480 458.114
Current assets Inventories and operating stock Operating stock 12.542 16.898 15.251 19.440 Total inventories and operating stock 12.542 16.898 15.251 19.440
Receivables 12 Trade receivables 62.775 49.647 73.487 61.187 Receivables from group enterprises 2.609 12.865 0 0 Receivables from associates 1.915 2.074 1.930 2.092 Other receivables 1.546 4.401 3.775 7.343 Receivables from income tax 0 0 0 1.230 Prepayments 5.887 6.485 6.354 6.735 Total receivables 74.732 75.472 85.546 78.587
Cash 13 Cash and cash equivalents 148.046 162.766 174.063 189.888
Total current assets 235.320 255.136 274.860 287.915
Total assets 879.980 724.918 904.340 746.029
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 35 EQUITY AND LIABILITIES at. 31 December Royal Arctic Line A/S Royal Arctic Group
DKK m 2014 2013 2014 2013
Equity 14 Share capital 120.000 120.000 120.000 120.000 Reserve for net revaluation according to the equity method - Affiliated companies 40.414 37.837 0 0 - Associated companies 3.871 4.046 5.249 5.428 Proposed dividend for year 326.649 304.960 365.685 341.415 Retained earnings 0 25.000 0 25.000 Equity, total 490.934 491.843 490.934 491.843
Minority interests 15 Minority interests’ share of equity 0 0 745 1.196 Total minority interests 0 0 745 1.196
Provisions 8 Deferred tax 82.726 91.548 84.286 92.678 Warranty commitments 385 525 540 585 Total provisions 83.111 92.073 84.826 93.263
Liabilities other than provisions Non-current liabilities other than provisions Collateral debt in ships 154.607 4.534 154.607 4.534 Mortgage debt 17.833 19.356 17.833 19.356 16 Total non-current liabilities other than provisions 172.440 23.890 172.440 23.890
Current liabilities other than provisions 16 Next years instalments on non-current liabilities other than provisions 14.967 10.583 14.967 10.583 17 Trade payables 16.777 24.671 23.160 30.739 Payables to group enterprises 10.240 14.859 0 0 Payables to associates 604 426 744 553 Income tax 19.375 0 20.481 0 18 Other payables 70.154 66.573 94.665 93.962 Prepayments 1.378 0 1.378 0 Current liabilities other than provisions 133.495 117.112 155.395 135.837
Total liabilities other than provisions 305.935 141.002 327.835 159.727 23 Assets charged Total equity and liabilities 879.980 724.918 904.340 746.029 24 Lease and rental commitments
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 36 STATEMENT OF CHANGES IN EQUITY
Reserve for net revaluation Share capital Dividend Retained earnings Total equity according to the equity method DKK ’000
Royal Arctic Line A/S
Equity as of 1 January 2014 120.000 41.883 25.000 304.960 491.843 Profit for the year 2.402 ( 25.000) 21.689 ( 909) Equity 31 December 2014 120.000 44.285 0 326.649 490.934
Equity 1 January 2013 120.000 39.813 0 341.928 501.741 Profit for the year 2.070 25.000 ( 41.343) ( 14.273) Tax value of dividends 6.137 6.137 Fair value adjustment of hedging instruments ( 1.762) ( 1.762) Equity 31 December 2013 120.000 41.883 25.000 304.960 491.843
Royal Arctic Group
Equity as of 1 January 2014 120.000 5.428 25.000 341.415 491.843 Profit for the year ( 179) ( 25.000) 24.270 ( 909) Equity 31 December 2014 120.000 5.249 0 365.685 490.934
Equity 1 January 2013 120.000 6.143 0 375.598 501.741 Profit for the year ( 715) 25.000 ( 38.558) ( 14.273) Tax value of dividends 6.137 6.137 Fair value adjustment of hedging instruments ( 1.762) ( 1.762) Equity 31 December 2013 120.000 5.428 25.000 341.415 491.843
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 37 CASH FLOW STATEMENT
Royal Arctic Line A/S Royal Arctic Group
DKK m 2014 2013 2014 2013
Cash flow from operating activities Operating profit 34.762 ( 27.397) 40.457 ( 24.193) Amortisation, depreciation and impairment losses 38.982 43.332 47.552 50.880 Dividends from group enterprises 1.600 0 0 0 Net interest ( 4.120) 4.479 ( 4.133) 4.415 8 Income tax paid 0 ( 7.372) ( 416) ( 7.852) 19 Working capital changes ( 2.418) ( 26.145) ( 8.122) ( 21.526) Cash flow from operating activities 68.806 ( 13.103) 75.338 1.724
Cash flow from investing activities 10,20 Investments ( 216.670) ( 119.120) ( 224.692) ( 125.590) Fixed asset divestments 4.210 5.304 4.595 6.352 Loan capital, associates 1.000 1.000 1.000 1.000 Cash flow from investing activities ( 211.460) ( 112.816) ( 219.097) ( 118.238)
Cash flow from financing activities 21 Borrowing for the year 163.486 0 163.486 0 22 Instalments for the year ( 10.552) ( 10.514) ( 10.552) ( 10.514) Dividend paid ( 25.000) 0 ( 25.000) 0 Cash flow from financing activities 127.934 ( 10.514) 127.934 ( 10.514)
Increase/decrease in cash and cash equivalents ( 14.720) ( 136.433) ( 15.825) ( 127.028) Cash and cash equivalents at beginning of year 162.766 299.199 189.888 316.916 Cash and cash equivalents at year-end 148.046 162.766 174.063 189.888
Composed as follows: 13 Cash and cash equivalents 148.046 162.766 174.063 189.888 Total 148.046 162.766 174.063 189.888
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 38 NOTES
Royal Arctic Line A/S Royal Arctic Group Royal Arctic Line A/S Royal Arctic Group DKK ’000 unless otherwise stated 2014 2013 2014 2013 2014 2013 2014 2013
1 Total income 4 Amortisation, depreciation and impairment losses on fixed assets The Company’s income derives from transport services between Greenland, Canada, Iceland and Ships 11.559 11.559 11.559 11.559 Denmark, between towns in Greenland, transport to and from port, stevedore services and other Buildings 4.981 4.907 5.820 5.748 services logically related thereto Transport equipment, harbour boats, machinery and fixtures 24.936 27.609 32.513 35.081 Revenue is divided into income from concessioned sea transport and other, non-concessioned income. Goodwill on consolidation 0 0 163 163 Other operating income is made up of the Government of Greenland’s payment for the service contract which was entered into with Royal Arctic Bygdeservice A/S and Royal Arctic Line A/S for administration Profit/loss on sale of fixed assets ( 2.494) ( 743) ( 2.503) ( 1.671) of port authority. Total amortisation, depreciation and impairment losses 38.982 43.332 47.552 50.880
2 Cargo-related expenditures 5 Income from investments in group enterprises and associates after tax These relate to costs that are directly incurred in order to generate income, and primarily relate to costs Income from investments in group enterprises after tax for transport to and from ports and commission to Royal Arctic Logistics A/S. Royal Arctic Logistics A/S 4.271 3.008 Royal Arctic Bygdeservice A/S ( 95) ( 113) 3 Staff costs Total income from investments in group enterprises 4.176 2.895 Staff costs can be specified as follows: Wages and salaries 178.065 178.015 268.850 268.444 Income from investments in associates after tax Pension contributions and social security costs 24.763 24.282 35.484 34.876 Ejendomsselskabet Suliffik A/S 213 109 213 109 Other staff costs 6.656 8.626 8.910 10.733 Arctic Umiaq Line A/S 0 0 0 0 Total staff costs 209.484 210.923 313.244 314.053 Aalborg Toldoplag A/S 0 0 ( 4) 110 Executive Board 2.986 2.815 Nordjysk Kombi Terminal A/S 0 0 0 0 Provision for changes in Executive Board 3.106 0 Arctic Base Supply A/S ( 388) ( 934) ( 388) ( 934) Total income from investments in associates ( 175) ( 825) ( 179) ( 715) Board of Directors 1.747 900 Total remuneration 7.839 3.715 6 Financial income Income from fixed asset investments 150 204 150 204 In connection to hiring a new CEO in 2015 a provision for the resignation of the current CEO has been provided and expensed for the obligations relating to the contract of the current CEO. Income from associates 91 80 0 0 Income from derivatives 1.255 4.020 1.255 4.020 Average number of full-time employees 574 582 748 762 Other financial income 1.771 3.149 1.821 3.207 Number of employees at year-end 575 580 746 756 Total financial income 3.267 7.453 3.226 7.431
Average number of trainees 54 62 54 62 7 Financial expenditures Year-end headcount of trainees 52 55 52 55 Expenditures from associates ( 98) ( 33) 0 0 Expenditures from direvatives ( 4.983) ( 1.167) ( 4.983) ( 1.167) Total number of Royal Arctic Line A/S staff (at year-end) seconded to Other financial expenditures ( 2.306) ( 1.774) ( 2.376) ( 1.849) Royal Arctic Bygdeservice A/S 24 21 Total financial espenditures ( 7.387) ( 2.974) ( 7.359) ( 3.016) Arctic Umiaq Line A/S 34 34 Arctic Base Supply A/S 2 2 I additon, Financial expenditures for new building of vessel are included in the balance sheet: 6.213 4.046 6.213 4.046
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 39 NOTES
Royal Arctic Line A/S Royal Arctic Group Royal Arctic Line A/S Royal Arctic Group DKK ’000 unless otherwise stated 2014 2013 2014 2013 2014 2013 2014 2013
8 Income tax Deferred tax is incumbent on the following fin. statement items: The income tax expensed is composed as follows: Property, plant and equipment 69.583 81.868 71.298 83.778 Fixed asset investments 14.127 13.329 14.127 13.329 Royal Arctic Line A/S Current assets 938 ( 1.285) 859 ( 1.333) Current tax, Greenland 19.375 0 19.375 0 Non-current liabilities other than provisions 0 ( 2.197) 0 ( 2.197) Deferred tax, Greenland ( 8.883) ( 6.639) ( 8.883) ( 6.639) Other ( 1.922) ( 167) ( 1.998) ( 899) Adjustment conc. previous years 60 64 60 64 Total 82.726 91.548 84.286 92.678 Group enterprises Current tax, Greenland 0 0 9 Intangible assets Current tax, Denmark 1.272 0 Goodwill on consolidation Adjustment for previous years 251 224 Cost Deferred tax, Greenland ( 44) ( 51) Cost at beginning of year 0 0 813 813 Deferred tax, Denmark 525 859 Cost at year-end 0 0 813 813 Effect of change in tax rate, Denmark ( 50) ( 327) Amortisation and impairment losses Tax on profit for the year 10.552 ( 6.575) 12.506 ( 5.870) Amortisation and impairment losses at beginning of year 0 0 650 488 Income tax 0 7.372 416 7.852 Amortisation and impairment losses for the year 0 0 163 162 Total tax paid 0 7.372 416 7.852 Amortisation and impairment losses at year-end 0 0 813 650
Reconciliation of income tax rate: Carrying amount at year-end 0 0 0 163 Greenlandic income tax rate 31,8% 31,8% 31,8% 31,8% 10 Property, plant and equipment Double taxed increase in value in group enterprises 2,4% ( 4,4)% 2,3% ( 4,5)% Ships Difference in income tax rate for group enterprises ( 3,8)% 4,4% 0,4% 1,6% Cost Effect of change in rate on deffered tax, Denmark ( 0,1)% 1,6% Cost at beginning of year 781.743 781.743 795.939 795.939 Other income tax rate, minority interests 0,0% 0,0% 0,1% ( 0,2)% Cost at year-end 781.743 781.743 795.939 795.939 Other, incl. non-deductible costs 0,1% ( 0,3)% 0,2% ( 1,7)% Effective income tax rate for the year 30,5% 31,5% 34,7% 28,6% Depreciation and impairment losses Depreciation and impairment losses at beginning of year 666.694 655.135 680.888 669.329 Provision for deferred tax is due to a tax depreciation exceeding book depreciation and is composed as Depreciation and impairment losses for the year 11.559 11.559 11.559 11.559 follows: Depreciation and impairment losses at year-end 678.253 666.694 692.449 680.888 Provisions at beginning of year 91.548 104.260 92.677 104.855 Adjust. conc. the previous year 61 64 61 64 Carrying amount at year-end 103.490 115.050 103.490 115.050 Provisions for the year ( 8.883) ( 6.639) ( 8.452) ( 6.104) Tax value of dividends 0 ( 6.137) 0 ( 6.137) Provisions at year-end 82.726 91.548 84.286 92.678
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 40 NOTES
Royal Arctic Line A/S Royal Arctic Group Royal Arctic Line A/S Royal Arctic Group DKK ’000 unless otherwise stated 2014 2013 2014 2013 2014 2013 2014 2013
Buildings Assets under construction - ships Cost Cost Cost at beginning of year 149.148 149.148 159.232 159.290 Cost at beginning of year 123.053 20.700 123.053 20.700 Disposals for the year ( 1.693) 0 ( 1.693) ( 58) Additions for the year 213.373 102.353 213.373 102.353 Retained from other items 8.284 0 8.284 0 Carrying amount at year-end 336.426 123.053 336.426 123.053 Cost at year-end 155.739 149.148 165.823 159.232 Includes financial expenditures of: 14.659 8.446 14.659 8.446 Depreciation and impairment losses Depreciation and impairment losses at beginning of year 73.894 68.987 77.744 71.996 Asset under construction - buildings Depreciation and impairment losses for the year 4.981 4.907 5.820 5.748 Cost Depreciation and impairment losses regarding Cost at beginning of year 9.310 5.204 9.350 5.204 disposals for the year ( 1.108) 0 ( 1.108) 0 Additions for the year 33 4.106 0 4.146 Depreciation and impairment losses at year-end 77.767 73.894 82.456 77.744 Disposals for the year ( 364) 0 0 0 Retained from other items ( 8.284) 0 ( 8.655) 0 Carrying amount at year-end 77.972 75.254 83.367 81.488 Carrying amount at year-end 695 9.310 695 9.350
Transport equipment, harbour boats, machinery and fixtures Assets under construction - transport equipment, harbour boats, machinery and fixtures Cost Cost Cost at beginning of year 352.184 357.326 445.681 447.175 Cost at beginning of year 953 0 913 0 Additions for the year 3.981 11.707 12.003 18.177 Additions for the year 23 953 0 913 Disposals for the year ( 17.603) ( 16.849) ( 18.480) ( 19.671) Disposals for the year ( 375) 0 ( 913) 0 Retained from other items 601 0 601 0 Retained from other items ( 601) 0 0 0 Cost at year-end 339.163 352.184 439.805 445.681 Carrying amount at year-end 0 953 0 913
Revaluation Total - assets under construction 337.121 133.317 337.121 133.317 Revaluation at beginnings of year 0 0 1.500 1.500 Revaluation at year-end 0 0 1.500 1.500 Total, property, plant and equipment 576.883 403.255 612.413 439.555
Depreciation and impairment losses Related to newbuilding contract, the banks of the Depreciation and impairment losses at beginning of year 272.551 257.482 337.482 317.540 Polish shipyard have agreed to refundment guarantees Depreciation and impairment losses for the year 24.936 27.609 32.513 35.081 covering Royal Arctic Line A/S’ installment payments during the ships’ construction Depreciation and impairment losses regarding disposals for the year ( 16.624) ( 12.542) ( 17.125) ( 15.139) Assets charged, see note 23 Depreciation and impairment losses at year-end 280.863 272.549 352.870 337.482
Carrying amount at year-end 58.300 79.634 88.435 109.700
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 41 NOTES
Royal Arctic Line A/S Royal Arctic Group Royal Arctic Line A/S Royal Arctic Group DKK ’000 unless otherwise stated 2014 2013 2014 2013 2014 2013 2014 2013
11 Fixed asset investments Receivables from associates Investments in group enterprises Cost Cost Cost at beginning of year 3.000 4.000 3.000 4.000 Cost at beginning of year 12.109 12.109 Changes for the year ( 1.000) ( 1.000) ( 1.000) ( 1.000) Cost at year-end 12.109 12.109 Cost at year-end 2.000 3.000 2.000 3.000
Revaluation and impairment losses Carrying amount at year-end 2.000 3.000 2.000 3.000 Revaluation and impairment losses at beginning of year 37.837 34.942 Share of profit for the year 4.176 2.895 Securities Dividend paid ( 1.600) 0 Cost Revaluation and impairment losses at year-end 40.413 37.837 Cost at beginning of year 4.788 5.042 4.789 5.043 Additions for the year 0 0 0 0 Carrying amount at year-end 52.521 49.946 Disposals for the year ( 150) ( 254) ( 150) ( 254) Cost at year-end 4.638 4.788 4.639 4.789 Investments in associates Cost Carrying amount at year-end 4.638 4.788 4.639 4.789 Cost at beginning of year 4.747 4.747 5.179 5.179 Cost at year-end 4.747 4.747 5.179 5.179 Total, fixed asset investments 67.777 66.527 17.067 18.396
Revaluation and impairment losses 12 Trade receivables Revaluation and impairment losses at beginning of year 4.046 4.871 5.428 6.143 Apart from freight income, trade receivables include duties collected on behalf of the Government of Share of profit for the year ( 175) ( 825) ( 179) ( 715) Greenland. These duties are collected together with the freight.. Revaluation and impairment losses at year-end 3.871 4.046 5.249 5.428 Item includes:
Carrying amount at year-end 8.618 8.793 10.428 10.607 Shipments in progress 124 3.633 124 3.633 Unpaid amount of cash on delivery consignments 2.018 2.030 2.018 2.036 Ejendomsselskabet Suliffik A/S, Nuuk, share 30,3% 4.946 4.733 4.946 4.733 Arctic Umiaq Line A/S, share 50% 182 182 182 182 13 Cash and cash equivalents/bank debt Aalborg Toldoplag A/S, Aalborg, share 40% 0 0 1.601 1.598 Of which USD 725 527 752 546 Nordjysk Kombi Terminal A/S, Aalborg, share 50% 0 0 209 216 Of which EUR 73 290 784 631 Arctic Base Supply A/S, share 50 % 3.490 3.878 3.490 3.878 Of which SEK 0 0 5 5
Carrying amount at year-end 8.618 8.793 10.428 10.607 In DKK (current exchange rate at the balance sheet date) 4.980 5.016 10.437 7.667
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 42 NOTES
Royal Arctic Line A/S Royal Arctic Group Royal Arctic Line A/S Royal Arctic Group DKK ’000 unless otherwise stated 2014 2013 2014 2013 2014 2013 2014 2013
14 Share capital 19 Working capital changes Share capital is not divided into classes. Increase/decrease in receivables 740 ( 6.073) ( 6.959) 7.754 Share capital consists of one share at DKK 80m and one share at DKK 40m. Increase/decrease in operating stocks 4.356 2.674 4.189 1.614 Share capital has not changed in the last five years. Increase/decrease in provisions ( 140) 229 ( 45) 229 Increase/decrease in trade payables ( 7.894) ( 11.936) ( 7.579) ( 16.615) 15 Minority interests’ share of equity Increase/decrease in other payables etc 520 ( 11.039) 2.272 ( 14.508) Minority interests’ share of equity at beginning of year 1.196 1.655 Ændring i driftskapital i alt ( 2.418) ( 26.145) ( 8.122) ( 21.526) Share of profit for the year ( 451) ( 350) Adjustment, beginning of year 2012 0 ( 109) 20 Investments Minority interests’ share of equity at year-end 745 1.196 Investments in ships 0 0 0 0 Investments in buildings 8.284 0 8.284 0 16 Non-current liabilities other than provisions Investment in other fixed assets 4.582 11.707 12.604 18.177 Non-current liabilities are payable as follows: Change in assets under construction 203.804 107.413 203.804 107.413 Current portion of collateral debt in ships 13.413 9.068 13.413 9.068 Investeringer i alt 216.670 119.120 224.692 125.590 Current portion of mortgage debt 1.554 1.515 1.554 1.515 Total current portion 14.967 10.583 14.967 10.583 21 Borrowing for the year Loans raised, collateral debt in ships 163.486 0 163.486 0 Total non-current portion 172.440 23.890 172.440 23.890 Loans raised, mortgage debt 0 0 0 0 Total borrowing for the year 163.486 0 163.486 0 Total carrying amount 187.407 34.473 187.407 34.473 22 Instalments for the year Total amortasion account borrowing costs 374 404 374 404 Instalments for the year, collateral debt in ships 9.068 9.068 9.068 9.068 Instalments for the year, mortgage debt 1.484 1.446 1.484 1.446 Total nominal value 187.781 34.877 187.781 34.877 Total instalments for the year 10.552 10.514 10.552 10.514
Payable after more than five years (amortised cost) 23 Assets charged Collateral debt in ships 31.696 0 31.696 0 The carrying amount of assets charged is: 648.000 648.000 648.000 648.000 Mortgage debt 10.439 12.162 10.439 12.162 The carrying value of the mortgaged vessels are: 103.490 115.050 103.490 115.050 Total amortised cost 42.135 12.162 42.135 12.162 Mortgage debt is secured by properties 17 Trade payables Mortgages nominal value is: 53.386 53.386 53.386 53.386 Includes the unpaid amount of cash on delivery consign- The carrying value of the mortgaged properties are: 44.881 39.715 44.881 39.715 ments in the amount of: ( 2.018) ( 2.030) ( 2.018) ( 2.036)
18 Other payables Payable items relating to wages and salaries 39.122 37.074 59.668 48.532 Investment contribution 16.593 20.238 16.593 20.238 Payable costs 14.439 9.261 18.404 25.192 Total other payables 70.154 66.573 94.665 93.962
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 43 NOTES
Royal Arctic Line A/S Royal Arctic Group Royal Arctic Line A/S Royal Arctic Group DKK ’000 unless otherwise stated 2014 2013 2014 2013 2014 2013 2014 2013
24 Lease and rental commitments 28 Executive functions In addition to the on-balance sheet liabilities, the Company has the following, significant liabilities: Board of Directors and Executive Managements executive functions in Public Companies, except for wholly owned subsidiaries. Rental of containers expiring in 2019 and a total Kuno Søren Hannibal Fencker payment of USD 4,7M equivalent to DKK: 28.895 34.989 28.895 34.989 Chairman of the board, Aluu Airlines A/S Of which USD 2,1M. equivalent to DKK 12.927 falls due in 2015 Erik Jørgen Østergaard Chairman of the board, Holdingselskabet Torsøvej 2 A/S Lease agreements that may be terminated at the end of 2016 with annual payments of 29.221 27.979 29.221 27.979 Chairman of the board, Holdingselskabet af 19.02.2013 A/S Member of the board, Associated Danish Ports A/S Lease agreements that may be terminated at the end of Member of the board, SOS International A/S 2022 with annual payments of: 111.526 142.217 Jens Andersen Royal Arctic Logistics A/S has provided a rent payment Chairman of the board, Ejendomsselskabet ”Posthuset” A/S guarantee of: 6.200 6.200 Member of the board, Arctic Umiaq Line A/S Limited joint and several guarantee, Arctic Base Supply A/S 1.000 1.000 1.000 1.000 29 Accounting policies 25 Contractual derivatives Basis of accounting Anticipated risks and losses that arise before the time of presentation of the annual report and that Purchases - oil contracts, 14.375 MTS The annual report of Royal Arctic Line has been confirm or invalidate affairs and conditions existing presented in accordance with the Greenlandic Remaining maturity 0-4 months at the balance sheet date are considered on recogni- Financial Statements Act governing reporting class tion and measurement. D enterprises. 26 Fees to auditors appointed by the Annual General Meeting Income is recognised in the income statement Fees to the auditors appointed by the Annual General The accounting policies are consistent with those when earned, whereas costs are recognised by the Meeting are recognised in the annual report as follows: applied last year. The annual report has been presen- amounts attributable to this financial year. Value ted in DKK ’000 unless otherwise stated. Statutory audit 496 748 735 1.055 adjustments of financial assets and liabilities are recognised in the income statement as financial Other assistance 540 926 678 989 Recognition and measurement income or financial expenses. Total 1.036 1.674 1.413 2.044 Assets are recognised in the balance sheet when it is probable that future economic benefits will Consolidated financial statements 27 Related parties flow to the Group and the value of the asset can The consolidated financial statements include Royal Related parties include members of the Company’s Board of Directors and Executive Board, the be measured reliably. Liabilities are recognised in Arctic Line A/S (Parent) as well as the domestic and Company’s sole share-holder, The Government of Greenland, and companies in which the above have a the balance sheet when the Group has a legal or foreign companies (group enterprises) with commer- controlling interest or exercise significant influence. constructive obligation as a result of a prior event, cial activities in progress, which are controlled by the Management remuneration is disclosed in note 3. and it is probable that future economic benefits will Parent, see the group chart on page 22. Control is Significant related party transactions with the owner, the Government of Greenland, consists of flow out of the Group, and the value of the liability achieved by the Parent, directly or indirectly, holding dividends paid. can be measured reliably. more than 50% of the voting rights. Significant related party transactions with group affiliates or associates consist primarily of rent, travel administration and ship management. On initial recognition, assets and liabilities are Enterprises in which the Group, directly or indirectly, All related party transactions have been conducted on an arm’s length basis. measured at cost. Measurement subsequent to initial holds between 20% and 50% of the voting rights recognition is effected as described below for each and exercises significant, but not controlling financial statement item. influence are regarded as associates.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 44 NOTES
Consolidation principles Allowance is made for the tax effect of Derivative financial instruments Terminals perty, plant and equipment are calculated The consolidated financial statements restatements made. On initial recognition, derivative financial This item mainly comprises costs for as the difference between selling price are prepared on the basis of the financial instruments are recognised in the balance properties and costs for the ships’ calling minus selling costs and the carrying statements of Royal Arctic Line A/S and Positive differences in amount (goodwill) sheet at cost, subsequently at fair value. into port. amount at the time of sale. its group enterprises. The consolidated between cost of the acquired investment Fair value of derivative financial instru- financial statements are prepared com- and fair value of the assets and liabilities ments are recognised in other receivables Container operations Income from investments in group bining uniform financial statement items. acquired are recognised under intangible or other payables. Container operations mainly comprise enterprises and associates On consolidation, intra-group income assets, and they are amortised systemati- container rental and maintenance and The proportionate share of the individual and expenses, intra-group accounts and cally in the income statement based on an For derivative financial instruments that insurance of containers. group enterprises’ tax profits or losses dividends, profits and losses on transacti- individual assessment of their useful lives, do not qualify as hedging instruments, after tax after elimination of unrealised ons among the consolidated enterprises usually five years. Negative differences in changes in fair market value are recogni- Sales and administration intra-group profits and losses and plus as well as unrealised intra-group profits amount (negative goodwill), correspon- sed currently in the income statement as This item comprises selling, marketing or minus amortisation of positive, or are eliminated. The financial statements ding to an estimated adverse development financial income or financial expenses. and administrative costs. It also includes negative, goodwill on consolidation used for consolidation have been prepared in the relevant enterprises, are recognised impairment losses on receivables recogni- is recognised in the Parent’s income applying the Group’s accounting policies. in the balance sheet separately as deferred Income statement sed in current assets. statement. The proportionate share of income, and in the income statement as associates’ profit after tax is recognised in Group enterprises’ financial statement such adverse development is realised. Revenue Staff costs the consolidated income statement. items are recognised in full in the consoli- Basic freight income is recognised propor- Staff costs comprise salaries and wages dated financial statements. Profit or loss from fixed asset divestments tionately according to the ships’ position as well as social security contributions, Financial income and expenses Profit or loss from divestment or win- for the shipments in progress at financial pension contributions and other costs Financial income and expenses comprise Minority interests’ proportionate share of ding-up of group enterprises is calculated year-end. Other income includes services related to the Company’s staff. interest income and expenses, realised profit/loss and the net assets are disclosed as the difference between selling price or delivered during the year. Expenses are and unrealised capital gains and losses as separate items in the income statement settlement price and carrying amount of taken to the income statement in the Depreciation on securities, payables and transactions and the balance sheet. the net assets at the time of divestment period in which they are incurred. Items of property, plant and equipment in foreign currencies as well as mortgage or winding-up, inclusive of unamortised are depreciated straight-line over their amortisation premium relating to colla- Investments in group enterprises are offset goodwill and estimated divestment or Other operating income expected useful lives. teral debt and mortgage debt. at the proportionate share of such group winding-up expenses. Profits and losses Other operating income mainly comprise enterprises’ net assets at the acquisition are recognised in the income statement income from service contracts entered into Depreciation is based on the following Financial income and expenses subject date, with net assets having been calcula- under income from investments in with the Government of Greenland. evaluation of the useful lives of property, to a period of payment other than the ted at fair value. affiliated companies. plant and equipment: financial year must be accrued accordingly. Costs Business combinations Foreign currency translation At the time of recognition of freight Ships: 10-20 years Taxation Newly acquired or newly established On initial recognition, foreign currency income etc, costs related to freight are Tax for the year comprising current tax and enterprises are recognised in the consoli- transactions are translated applying the expensed. Buildings: 5-30 years changes in deferred tax is recognised in dated financial statements from the time exchange rate at the transaction date. the income statement together with any Freight-related costs of acquiring/establishing such enterprises. Receivables, payables and other monetary Transport equipment, adjustments concerning previous years. Such costs mainly comprise pre- and Divested or wound-up enterprises are items denominated in foreign currencies harbour boats, post-transportation costs as well as costs recognised in the consolidated income sta- that have not been settled at the balance machinery and fixtures: 3–10 years Current tax liabilities are recognised in the for packing and unpacking related to tement up to the time of their divestment sheet date are translated using the balance sheet stated as tax computed on moving. or wind-up. exchange rate at the balance sheet date, Implementation expenses for a new ERP the taxable income for the year. Changes or the rate at which the amounts are system are recognised in the item Trans- in deferred tax resulting from changed Ships The purchase method is applied in the hedged. Exchange differences that arise port equipment, harbour boats, machinery tax rates are recognised in the income This item mainly comprises costs for the acquisition of new enterprises, under between the rate at the transaction date and fixtures and are depreciated over a statement. ships’ consumption of fuel and costs for which identifiable assets and liabilities and the rate in effect at the payment date period of three years. Assets costing less the maintenance and docking of ships. of these newly acquired enterprises are or the rate at the balance sheet date are than DKK 50,000 are recognised in the Tax is charged at the rate of 24.5% of measured at fair value at the acquisition recognised in the income statement as income statement in the year of acquisi- Danish income, and at the rate of 31.8% of date. On acquisition, provisions are made financial income or financial expenses. tion. Greenlandic income. for costs relating to decided and published Fixed assets purchased in foreign curren- restructuring of the acquired enterprise. cies are translated using historical rates. Profits and losses from the sale of pro-
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 45 NOTES
Balance sheet Group enterprises and associates with Dividend behalf of the Government of Greenland, is Cash flow from investing activities negative equity value are measured at nil, Dividend is recognised as a liability at the to cover the higher expenses for supply to comprise payments in connection with Intangible assets and any receivables from these enter- time of adoption at the general meeting. villages as a result of the building of new acquisition and divestment of enterprises Intangible assets are measured at cost prises are written down by the Parent’s Any dividend proposed for the financial ships for providing supplies to settle- and activities as well as acquisition and less amortisation and impairment losses. share of such negative equity value if it year is disclosed as a separate item in ments. As these ships are expected to be sale of intangible assets, property, plant Amortisation is made straight-line over a is deemed irrecoverable. If the negative equity. delivered in 2015, the investment contri- and equipment as well as fixed asset period of five years. equity exceeds the amount receivable, the bution has been recognised in the balance investments. remaining amount is recognised under Minority interests sheet as a payable at 31 December. Property, plant and equipment provisions if the Parent has a legal or con- Minority interests include minority Cash flows from financing activities Items of property, plant and equipment structive obligation to cover the liabilities interests’ share of subsidiaries’ equity. Other financial liabilities are recognised comprise changes in the size or composi- are measured at cost less accumulated of the relevant enterprise. at amortised cost, which usually equals tion of the share capital and related costs depreciation and impairment losses. Provisions nominal value. as well as the raising of loans, instalments Net revaluation of investments in group Deferred tax is recognised and measured on interest-bearing debt, and payment of Cost comprises acquisition price, costs enterprises and associates is taken to in accordance with the balance-sheet Deferred income dividend. directly attributable to the acquisition, reserve for net revaluation according to liability method of all temporary diffe- Deferred income comprises income recei- and preparation costs of the asset until the equity method if the carrying amount rences between the carrying amount and ved for recognition in subsequent financial Cash and cash equivalents comprise cash the time when it is ready to be put into exceeds cost. tax-based value of assets and liabilities. years. Deferred income is measured at at bank and in hand. operation. The tax base of the assets is calculated amortised cost, which usually equals the The purchase method is applied in the based on the planned use of each asset. nominal amount. Interest on capital used in the production acquisition of group enterprises; see above period to make advance payments for new description under consolidated financial Deferred tax is measured based on the tax Deferred income also comprises amounts shipbuilding contracts is included in the statements. regulations and tax rates of the relevant charged in 2014 to cover costs for the acquisition price of the asset for which the countries that will be in effect according establishment and operation of border advance payment is made. Other investments to law at the balance sheet date when the inspection posts. Securities recognised under fixed asset deferred tax is estimated to translate into Leasehold improvements are included investments comprise listed bonds and current tax. under land and buildings. Cash flow statement investments measured at fair value (quoted price) at the balance sheet date. Deferred tax is charged at the rate of The cash flow statement is presented Property, plant and equipment are written Unrealised gains and losses are recogni- 23.5% of Danish income, and at the rate of using the indirect method and shows down to the lower of recoverable amount sed in the income statement. 31.8% of Greenlandic income. cash flows from operating, investing and and carrying amount. financing activities as well as the cash and Inventories Warranty commitments include commit- cash equivalents at the beginning and end Costs for maintenance carried out in con- Inventories are measured at the lower ments under maritime law. of the financial year. nection with ordinary ship’s class dockings of cost using the FIFO method and net are recognised in the income statement realisable value. Long-term debt Cash flows from acquisition and divest- when incurred. At the time of borrowing, debt is measured ment of enterprises are shown separately Receivables at cost, which is equivalent to the proceeds under cash flows from investing activities. Investments in group enterprises and Receivables are measured at amortised received less transaction costs incurred. Cash flows from enterprises acquired are associates cost, usually equalling nominal value less The debt is subsequently measured at recognised in the cash flow statement Investments in group enterprises and write-downs for bad debts. amortised cost equalling the capitalised from the time of their acquisition, and associates are recognised and measured value applying the effective interest cash flows from enterprises divested are according to the equity method. This Prepayments method. recognised up to the time of sale. means that, in the balance sheet, invest- Prepayments comprise incurred costs ments are measured at the proportionate relating to subsequent financial years. Other financial liabilities Cash flows from operating activities are share of the enterprises’ equity value plus Prepayments are measured at amortised In 2011, the Company began charging an calculated as the operating profit or loss or less unamortised positive, or negative, cost, which usually equals the nominal investment contribution that constitutes adjusted for non-cash operating items, goodwill on consolidation and plus or less amount. 3.1% of basic freight income. Such invest- working capital changes and corporate unrealised intra-group profits or losses. ment contribution, which is charged on income taxes paid.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 46 ROYAL ARCTIC LINE’S MARKET AND CHANGES IN VOLUMES CONNECTING GREENLAND CARGO VOLUME DEVELOPMENTS Greenland measures 2,670 km from the north Greenland has approx 56,000 inhabitants, of In total, 2014 saw a minor decline in cargo volumes compared to 2013. to the south. 18 towns and approx 60 villages which nearly 7,800 live in a village. The smallest and a small number of settlements are located village served by Royal Arctic Bygdeservice has Total cargo volumes went down to 741,000 cubic metres from 747,000 cubic metres. along the 40,000 km coastline of Greenland. 80 people, while Nuuk with 16,500 inhabitants is Most towns and villages are located on the west the biggest town in Greenland and the only one m3 coast. with more than 6,600 inhabitants. 800.000 Transport between towns and villages is only This means that many towns and villages in possible by plane or ship. From the Disko Bay to Greenland are so small that their modest cargo Northern Greenland as well as on the east coast, requirements do not match the relatively high 600.000 the ocean is generally covered with ice in the frequency of calls. Therefore, the frequency winter, and supplies are flown in over a period of requirement laid down by the concession must three to six months a year. be met in order to ship supplies to Greenlandic communities. 400.000
200.000
0 2010 2011 2012 2013 2014
Northbound Project cargo From Greenland Internally in Greenland
Cargo shipped to Greenland mainly consists other types of cargo out of Greenland saw of food, consumer goods, other ordinary progress, and the aggregate drop in cargo cargo and cargo for the construction indu- volumes out of Greenland was 1%. stry. Northbound cargo accounts for most of the Company’s revenue, and cargo volume Volumes transported in Greenland primarily developments are heavily influenced by relate to fish products and beer and soft general developments in society, particularly drinks. Beer and soft drinks are bottled those seen in the construction industry. in Nuuk, distributed to the coast and then Small fluctuations exist within the individual returned as empties to Nuuk. In 2014, internal types of cargo, but generally volumes are on cargo volumes went up by 4% compared to a par with 2013 with a total decline of approx 2013. 1%. Project cargo includes cargo not easily incor- Cargo shipped from Greenland mainly inclu- porated in the ordinary master sailing plan des fish products accounting for more than or the terms and conditions of the schedule 80% of all cargo exports. Therefore, changes of freight rates since it concerns types of in the politically stipulated TAC (Total cargo not easily managed or large volumes Allowed Catch), which is established through of uniform cargo. Project cargo may be cargo a political decision, impact directly on cargo not falling under the other cargo categories volumes exported out of Greenland. or cargo not governed by the concession. In 2014, project cargo volumes dropped by 2% In 2014, temperature-regulated cargo compared to 2013. declined by 4% compared to 2013. Most
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 48 CONCESSION AND RATES
The concession – a right and an obligation Royal Arctic Line has an exclusive right to ship cargo to, from and between the towns of Greenland and between Greenland and Non-concessioned business Reykjavik, Aalborg and a number of other Developments in concessioned cargo are overseas destinations. Under this exclu- conditional upon general developments in sive right, Royal Arctic Line is obliged to Greenlandic society, and so Royal Arctic Line service Greenland society. The concession is sensitive even to minor fluctuations in Prices and contribution rates lays down requirements concerning call such cargo. Consequently, Royal Arctic Line The Government of Greenland approves frequency, capacity and security of supply has started developing non-concessioned prices charged by Royal Arctic Line. A for all of the towns in Western and Eastern business areas. political decision has been made that freight Greenland. rates to be charged must be the same for One of these areas is the supply of research all of Greenland and that freight rates for The concession applies to cargo such as: stations in Antarctica. Royal Arctic Line southbound cargo must be lower than those has entered into an agreement with Norsk charged for northbound cargo to support • Food Polarinstitutt for an annual supply trip in the export trade. December/January. This trip supplies both • Consumer goods, including furniture, the Norwegian and the Belgian research An investment contribution rate of 3.1% white goods, cars and boats station. This agreement ensures that idle has been added to the freight rates. This capacity due to the Greenlandic winter is contribution rate is charged on behalf of the • Materials for the construction industry used which strengthens the Company’s Government of Greenland and forms part of earnings. the agreement signed by the Government • Other cargo, including transport of Greenland and Royal Arctic Bygdeservice equipment and tank containers In Greenland, Royal Arctic Line also for the servicing of Greenlandic villages. The performs tasks for the US Air Force to contribution rate is, for example, intended According to the Greenlandic Act on provide supplies to the Thule Air Base and to secure funding for new tonnage for the large-scale projects, a customer must be for Defence Command Denmark to provide 20-year term of the contract. The existing able to demonstrate that Royal Arctic Line is supplies for its activities in Eastern Green- contract of Royal Arctic Bygdeservice does not competitive if the customer is interested land. All agreements have been won in open not result in any profit to secure indepen- in co-operating with another shipping tenders. dent funding of new village ships. company. Other unconcessioned activities in Green- The oil and exchange rate margins are land are closely related to developments in charged separately to adjust for fluctuati- new subindustries in Greenlandic industries ons in oil prices and in the US dollar rate and production, particularly the mining and (currency for settlement of oil for the ships). oil industries. These sectors largely had no activities in 2014. The MRN fee is a customs registration fee. The EU requires Royal Arctic Line to submit electronic reports on cargo contents to the Greenlandic authorities. In order to cover additional costs for such reporting, Royal Arctic Lines charges a fee of DKK 40 for any shipment exceeding DKK 3,000.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 49 CARGO BY DESTINATION AND LINE SERVICE LEVEL
Volumes in m3 to Greenlandic towns Royal Arctic Line’s obligation to service Greenlandic society brings about requirements for a fixed 200.000 call frequency and a high degree of regularity and timeliness concerning the master schedule.
100
150.000 80
60
100.000 40
20 50.000 0 Jan Feb Mar Apr Maj Jun Jul Aug Sep Okt Nov Dec
2014 2013 0 Nuuk Narsaq Aasiaat Tasiilaq Ilulissat As for regularity, Royal Arctic Line’s target is to rough weather conditions that may delay a call. Sisimiut Paamiut Qaqortoq Maniitsoq Upernavik Nanortalik reach a rate of 80% for the master sailing plan. Should a ship be delayed during the journey, Uummannaq
Qasigiannguit For 2014, the average regularity rate was 85%, Royal Arctic Line will weigh the resulting equal to that of 2013. increase in bunker oil costs for timely calling against the degree of delay that would result Imports by routes 2014 Imports from contries other than Denmark Having set an annual average regularity target from maintaining slow steaming and hence low Denmark costs. 10.000 of 80%, Royal Arctic Line takes into account Others that sailing in Arctic waters is often subject to 8.000
6.000 Average regularity 4.000 2014 2013 2012 2011 2010 2.000 Realised 85% 85% 73% 72% 72% 0 Iceland Canada USA In 2014, cargo volumes shipped to Greenland This increase is particularly attributable to were largest for Nuuk, Sisimiut, Ilulissat and building materials from Iceland and temperatu- Aasiaat. These towns also accounted for the re-regulated cargo from Canada and the USA. largest volumes of such cargo for 2013. In 2014, Royal Arctic Line called into the In 2014, total volumes of cargo shipped to harbour of Reykjavik 16 times. For every call at Greenland from countries other than Denmark the harbour, Eimskip’s services from Canada represent 3.9%, a total of 13,478 cubic metres and the USA were involved. The rates are the compared to 8,052 cubic metres in 2013. same as those charged for cargo shipped from Denmark, but volumes remain rather low.
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 50 Market risks
Royal Arctic Line operates in a geographi- cally defined market and its core business is protected in the market under a concession. The concession guarantees a right to security of supply and imposes an obligation to provide such security. Due to the capacity necessary to meet these obligations, Royal Arctic Line is sensitive to even minor cargo volume fluctuations.
Another obligation under the concession is to operate a reasonable price structure enabling a high degree of cross-subsidising with few very profitable market shares subsidising non-profitable activities. Finally, imports are to subsidise exports.
The financial risks directly involved in these obligations are hedged by the concession, but since price and service level changes have a considerable impact on Greenlandic society, any such change must be approved by the Government of Greenland. This involves a political process, which may be time-consuming and which may have to take into account needs other than those of the Company.
Market risks are illustrated through monthly financial reports combined with various cor- porate governance tools, including the Board of Directors’ duties and responsibilities, active ownership and a general communica- tion policy..
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 51 © ROYAL ARCTIC LINE A/S, May 2015
Editing: Head of Communication Jakob Strøm Editor in Chief: CFO Bent Ole Baunbæk Photos: Lars Svankjær, Visit Greenland, Christian Harboe-Hansen
ROYAL ARCTIC LINE ANNUAL REPORT 2014 p. 52