annual report 2010 Company details Company Royal Arctic Line A/S, Aqqusinersuaq 52, PO Box 1580, 3900 Nuuk Phone: +299 34 91 00, Fax: +299 32 24 50, E-mail: [email protected], Homepage: www.ral.gl Reg no. A/S 209.527 GER no. 164545538 Registered office Nuuk, Greenland Share capital DKK 120m Ownership The Government of Greenland, Nuuk, 100% ownership Board of Directors Martha Labansen, Chairman Kristian Lennert, Vice-Chairman Bent Østergaard Claus E. Nielsen Ole Frie Efraim Tittussen* Jens Peter Berthelsen* Mariane Hansen* * Elected by the employees in 2010 for a four-year term. Executive Board Jens Andersen, Chief Executive Officer (CEO) Executive Group John Rasmussen, Chief Operations Officer (COO) and Chief Executive Officer (CEO), Royal Arctic Bygdeservice A/S Bent Ole Baunbæk, Chief Financial Officer (CFO) Niels Clemensen, Chief Development Officer (CDO) Management Group Jesper Balthazar-Christensen, Chief Executive Officer, Royal Arctic Logistics A/S Jette Larsen, Chief Executive Officer, Arctic Umiaq Line A/S Taitsiannguaq Olsen, Division Manager, Royal Arctic Havneservice, and Chief Executive Officer, Arctic Base Supply A/S* Harald Asschenfeldt, Department Head, IT Jens Boye, Department Head, Ship Management Helena R. Kristiansen, Department Head, HR Jakob Strøm, Department Head, Communication and Marketing Auditors Deloitte, Statsautoriseret Revisionsaktieselskab * Chief Executive Officer of Arctic Base Supply A/S from 1 January 2010 to 28 February 2011 annual report 2010 This document is an unofficial translation of the Danish original. In the event of any inconsistencies the Danish version shall apply. Contents 3 Financial highlights for the Group 15 Employees 15 Job satisfaction survey 5 Management commentary 15 Skills development 6 Performance for the year 15 Trainees 6 New ships 7 Sailing schedule for 2010 16 Royal Arctic Line Group 7 Freight rates 17 Royal Arctic Linietrafik 7 Oil and exchange rate margins 18 Royal Arctic Havneservice 7 Change of the Board of Directors and Management group 19 Royal Arctic Bygdeservice 7 Events after the balance sheet date 20 Royal Arctic Logistics 21 Associates 8 Outlook for 2011 22 Statement by Management 9 Risks on the annual report 10 Business foundation 23 Independent auditor’s report 11 The market 23 To the shareholder of Royal Arctic Line A/S 11 Cargo volumes 23 Management’s responsibility for the annual report 11 Iceland 23 Auditor’s responsibility and basis of opinion 12 Regularity 23 Opinion 12 Royal Arctic Line’s fleet 24 Accounting policies 13 Corporate Social Responsibilitys 24 Basis of accounting 13 Climate, environment, safety 24 Recognition and measurement 14 Social commitment 24 Consolidated financial statements 25 Income statement 26 Balance sheet 28 Income statement 29 Assets 30 Equity and liabilities 31 Statement of changes in equity 32 Cash flow statement 33 Notes 44 Corporate Governance of Royal Arctic Line 2 Financial highlights for the Group Developments in the Group over a five-year period can be described using the following financial highlights: DKK’m Income statement 2010 2009 2008 2007 2006 Total revenue 831 789 847 793 752 Operating profit 39 25 16 39 79 Net financials (1) (2) (6) (6) (10) Profit for the year before tax 41 23 10 33 69 Profit for the year 29 19 6 23 58 Dividend 0 0 0 6 25 Balance sheet Balance sheet total 714 689 703 745 767 Net working capital 222 145 (16) 56 98 Long-term debt 55 65 76 84 129 Equity 439 410 391 392 394 Cash flow Cash flow from operating activities 100 108 66 117 124 Cash flow from investing activities (22) 74 (143) (68) (26) Cash flow from financing activities (10) (12) (47) (76) (97) Increase/decrease in cash and cash equivalents 69 170 (124) (28) 1 Cash at year-end 249 181 11 135 163 Ratios * Profit margin (%) 5.0 3.1 1.8 5.0 10.5 Return on capital employed (%) 5.8 3.6 2.2 5.3 10.3 Return on equity (%) (ROE) 6.5 4.5 1.6 5.9 15.2 Solvency ratio (%) 61.6 59.5 55.6 52.5 51.3 Return on invested capital (%) (ROIC) 10.0 4.8 2.7 6.5 12.3 Operating asset gearing 0.8 1.0 1.4 1.5 1.6 Average number of full-time employees 795 818 862 809 680 *The key figures have been compiled in accordance with The Danish Association of Financial Analysts’ (Den Danske Finansanalytikerforening) “Recommendations and ratios 2010”. Definitions of ratios Working capital = Current assets – short-term debt Profit/loss before financial income and expenses X 100 Profit margin = Total revenue Profit/loss before financial income and expenses X 100 Return on capital employed = Total assets Profit/loss for the year X 100 Return on equity (ROE) = Average equity Equity at year-end X 100 Solvency ratio = Total assets 3 Profit/loss before financial income and expenses X 100 Return on invested capital (ROIC) = Average value of non-interest bearing net assets Non-interest bearing net assets Operating asset gearing = Equity at year-end For Royal Arctic Line, 2010 was marked by long-term solutions In 2010, in-coming cargo volumes tended not to quite match and new challenges. Two subsidiaries merged as Royal Arctic expectations. Consequently, Royal Arctic Line has had to make Linieagentur and Arctic Container Operation were combined certain adjustments. In order to emerge stronger from the as Royal Arctic Logistics. The base harbour agreement with serious challenges of 2010, the Company intensified its efforts Aalborg Havn has been renewed. to reach strategic targets to downsize operations. The purpose of the Ninngarut Project is to develop sustainable efficiency Another new company, Arctic Base Supply, was established and economic measures. This is a difficult but necessary in 2010, serving the emerging oil industry in Greenland. The task to do. Therefore, I would like to thank all our staff for their combination of the competencies of Danbor Service and Royal strong commitment. Thanks to them, Royal Arctic Line is well Arctic Line proved successful. equipped for future challenges. In December 2010, Royal Arctic Line decided to build five new vessels in 2011 and 2012, which are all to help guarantee security of supply in Greenland. Martha Labansen Jens Andersen Chairman of the Board of Directors CEO About Royal Arctic Line A/S The Government of Greenland has given Royal Arctic Line harbour in Aalborg, Denmark. Al sea cargo to and from A/S sole concession on sea transport of cargo to and from Greenland goes through Aalborg, or through Reykjavik as Greenland and among Greenlandic towns and settlements. regards cargo from North America. This has made the Company a lifeline for Greenlandic society. The subsidiary, Royal Arctic Logistics, and the associates, Royal Arctic Line and its subsidiary, Royal Arctic Bygdeservice, Arctic Umiaq Line and Arctic Base Supply, are responsible transport cargo to and from all towns and settlements of for public service and development work such as passenger Greenland. transport, logistics solutions and supplies to the oil industry. Royal Arctic Line also manages 13 harbours in Greenland and is Royal Arctic Line A/S was founded in 1993 and is wholly owned responsible for harbour business at the Greenlandic base by the Government of Greenland. 4 Management commentary 2010, which is Royal Arctic Line’s 18th year in operation, was The new ships will phase out all settlement ships. Expectations marked by changes and challenges, and far-reaching decisions are that also Pajuttaat and Arina Arctica will be phased out. were made. Unfortunately, the core business – concessioned cargo services to Greenland – saw a decline in cargo volumes The contract on the building of these new ships was finally to Greenland. However, non-concessioned cargo services and confirmed in January 2011 on inception of a 20-year contract new business areas developed positively. with the Government of Greenland on shipping services to settlements and by way of the Government’s approval of the Pre-tax profit for the year came to DKK 41m, which is approx. proposed financing of the new ship by the German bank, KfW DKK 15m up on the expectations stated in the interim report. IPEX. Net profit amounted to DKK 29m. In 2010, Royal Arctic Bygdeservice reached yet another This performance is considered satisfactory. milestone. A 20-year agreement was drawn up in close co- operation with the Government of Greenland on shipping The improved performance results from a number of factors, services to settlements, establishing the basis for investments including continued efforts to follow the Group’s strategy in new settlement ships. The basis was adopted through the to adapt costs to the current activity level and the fact that 2010 Finance Act and subsequently confirmed on adoption of earnings rose as a result of increasing activities and new the 2011 Finance Act. The agreement was finally adopted and business areas. signed by the Government of Greenland in January 2011. The settlements will be served by existing tonnage until year-end Given the decision to invest heavily in new ships, resulting in 2012 when the new ships are to be handed over. financial obligations, Management recommends not distributing dividend. 2010 posed new challenges to Arctic Umiaq Line (AUL), in which Air Greenland and Royal Arctic Line each have a Total cargo volumes to and from Greenland and cargo 50% equity interest. The Transport Commission states in its transported internally in Greenland amount to 842,000 cubic opinion that AUL should be dissolved based on commercial metres in 2010 against 822,000 cubic metres in 2009. considerations, but a decision to do so is a political decision after all. There was no political majority to that end, for which The total increase in cargo volumes arises from considerable reason Naalakkersuisut decided to await discussion of the issue fluctuations.