ANNUAL REPORT Ø R E S U N D S B R O K O N S O R T I E T

Transcription

1 ANNUAL REPORT Ø R E S U N D S B R O K O N S O R T I E T

2

3 Øresundsbro Konsortiet Øresundsbro Konsortiet s main task is to own and operate the Øresund Bridge. This includes ensuring an adequate revenue base as well as a responsible and balanced administration of the loan raised for financing the construction of the link in order that the loan can be repaid within a reasonable time frame. The Danish-Swedish Øresundsbro Konsortiet is jointly owned by A/S Øresund and Svensk-Danska Broförbindelsen (SVEDAB AB). SVEDAB AB, in turn, is owned by the Swedish state through Vägverket (The Swedish Road Administration) and Banverket (Swedish National Rail Administration) (50% each). A/S Øresund is wholly-owned by Sund & Bælt Holding A/S, which is owned by the Danish state. The owner companies are jointly and severally responsible for Øresundsbro Konsortiet s commitments. The ownership and Øresundsbro Konsortiet s objectives are detailed in the Danish-Swedish Government agreement of 1991 and in the Consortium Agreement signed between SVEDAB AB and A/S Øresund which has been approved by both the governments of the two countries. On the basis of the government agreement, Øresundsbro Konsortiet has formulated its vision, mission and business concept. Our vision is for the Øresund Region to become a new, cultural and economic powerhouse in Europe. Our mission is to build new bridges in economic terms as well as culturally and spiritually within the Øresund Region. Our business concept is to offer high level service transport opportunities across Øresund.

4 After a slow start, developments are forging ahead 2005 is set to become a landmark year for the Øresund Bridge. During the past twelve months we managed to reduce our construction debt for the first time and soon we shall be celebrating our fifth birthday. Moreover, we re entering the new financial year with a traffic volume that matches the forecast from the first year of operations, i.e. 11,800 vehicles per day. At the start we expected to reach this level after a penetration period during which traffic patterns would adjust to the new Øresund link. Today, we realise that this has taken longer than anticipated. We also expected to see a moderate annual increase in traffic after the initial period. Now we know that we have achieved a rise in traffic of between 10% and 15% per annum. And 2005 looks set to be an excellent year. Having started at a lower-than-expected level, the pace has clearly picked up and all indications are that the prospects for the next five years are good. We have tailored an alternative discount product for private travellers in the regional market - the BroPas - which offers a fixed, low price for the whole year. As the journey, however, is not an end in itself, we re also offering BroPas customers an advantage programme with special offers for particular events on the other side of Øresund. The Øresund Bridge was built to create the right conditions for enhancing cultural and economic co-operation between Sweden and Denmark and to develop a joint labour and housing market in the Øresund Region. The integration of the two sides, therefore, is both the main objective of the Øresund Bridge and a pre-condition for profitability and financial stability. It is, therefore, gratifying to note that integration is proceeding at full speed as evidenced by the dramatic rise in commuter traffic. Copenhagen March 2005 Sven Landelius Chief Executive Officer

5 Contents Management s review Main activities The Øresund Bridge in figures 4 The long haul is over,,, 5,,,but the bridge building continues 6 One in five cars is a commuter vehicle 8 The Øresund Bridge s market share has increased for all vehicle categories 9 All customers can now drive across the bridge at a fixed low price 10 Greater accessibility and few accidents 11 57,000 trains and high reliability on the Øresund Bridge s rail section 12 Management training and a new working environment organisation 13 Faults in concrete and steel constructions require repairs under guarantee 14 Environmental reports showed positive results 15 Economy Result for the year 16 Expectations for Financing Financing policy and borrowing 18 Foreign exchange risks 19 Interest rate risks 20 Credit risks 21 Financing result 22 Profitability 24 Statement by the Board of Management and Board of Directors 26 Auditors report 27 Accounting policies 28 Income statement 31 Balance sheet 32 Cash flow statement 34 Notes 35 Financial highlights 48 Board of Directors and Board of Management 49

6 MAIN ACTIVITIES The Øresund Bridge in figures Economy (DKK million) Revenue 1,087 1,021 Operating expenses Profit before depreciation and financial items Depreciation Interest expense Loss before foreign exchange and fair value adjustment Foreign exchange adjustment* Fair value adjustment* Profit/loss for the year Interest bearing net debt 31/12 19,860 19,934 Interest bearing net debt (fair value) 31/12 20,546 20,213 Exchange rate translated to SEK 82,50 82,02 Traffic volume road (1,000 vehicles) 4,325 3,781 Number of contract customers (31/12, 1,000 contracts) Average price passenger car (DKK, incl.vat) The bridge s accessibility 99.9% 99.9% Customer satisfaction Number of customers satisfied with their most recent journey across the bridge 95% 94% Traffic safety Serious personal injury per 10 million km since the bridge s opening Deaths per 100 million km 0 0 Traffic volume railway (number of passengers) 6.2 million 5.7 million Number employees (per 31/12) Women Men * The impact for 2004 on the result from currency options is included in the item, exchange rate adjustment. This item was previously included in the fair value adjustment. As the comparative figures for 2003 have been adjusted accordingly, DKK 13 million has been transferred from the fair value adjustment to exchange rate adjustment. 4 / Ø R E S U N D S B R O K O N S O R T I E T

7 The long haul is over was an important year for Øresundsbro Konsortiet. It was the first year when the cash flow from road traffic was sufficient to reduce the accumulated debt dating from the bridge s construction period. During the first few years following the bridge s opening, the company, as expected, raised further loans to secure its interest payments. However, the long haul is now over which is not least due to a substantial rise in traffic and low interest rates. In 2004, the result before depreciation and financial items exceeded interest expenses by DKK 161 million and thus contributed to a reduction in the net debt. Of this, however, DKK 32 million was channelled into new investments also brought good news about the integration of the Øresund Region and the development in traffic. Traffic rose by 14% which is a 100% increase compared to the budget. The explanation lies within the increasing numbers of commuters or business travellers and the fact that awareness of opportunities on the other side of Øresund is spreading. Profit before depreciation and financial items rose by 11% to DKK 818 million due to a 12% increase in road traffic revenue and a reduction of 4% in operating expenses. Interest expenses amounted to DKK 676 million, approximately DKK 149 million lower than the budget. This is partly owing to the fact that certain high interest loans were repaid ahead of schedule and partly because interest rate levels were substantially lower than assumed. After interest expenses and depreciation, the result was a loss of DKK 180 million which is an improvement of approximately 50% on The result was also affected by foreign exchange fluctuations and changes to the fair value adjustment of the company s debt. Fluctuations in the fair value do not, however, impact on the size of the actual interest payments and amortisation and, therefore, not on the repayment period either. After foreign exchange and fair value adjustment the result for the year was a loss of DKK 627 million. In 2005, Øresundsbro Konsortiet expects road traffic revenue to increase by approximately DKK 50 million and the deficit before foreign exchange and fair value adjustment to rise somewhat to approx. DKK 200 million, largely because of higher interest expenses. Ø R E S U N D S B R O K O N S O R T I E T / 5

8 ...but the bridge building continues The Øresund Bridge s long-term finances are extremely dependent on the development of the Øresund Region. As more and more travellers take advantage of the discount opportunities, the average price per crossing declines. The lower average prices must be compensated through higher traffic volume in order for the right balance to be achieved. In other words, revenue from road traffic will continue to rise and eventually generate a positive result. Traffic volumes on the Øresund Bridge are partly dependent on price levels but most of all on the region s residents and businesses and their knowledge about, and inclination for, making use of the opportunities on the other side of Øresund. This, in turn, is closely related to that it is becoming easier to live, work and do business on the other side. Almost five years after the inauguration of the Øresund Bridge, a number of border issues that are impeding integration remain. Differences in social provisions between Sweden and Denmark make it difficult to present an overview of the consequences of settling or taking a job on the other side. Companies are reluctant to set up business on the other side because start-up costs and personnel administration costs are felt to be unreasonably high. Clear initiatives are required from the region s politicians in order to remove these obstacles or, rather, sources of irritation, and for the partnership between Skåne and Zealand to develop further. The question is whether the two states can adjust to a world in which partnerships, even cross-border partnerships, are a pre-requisite for success. On the Swedish side, and on a trial basis, Region Skåne has acted as a regional body for the whole of Skåne and is an obvious partner in issues relating to the entire Øresund Region. All indications are that Region Skåne will retain its responsibilities when the Responsibility Survey presents its findings in On the Danish side, a structural reform is currently being implemented which will divide the Danish side of the Øresund Region into two regions, the Metropolitan Region and Region Zealand. At the time of writing it is not known how, and with what weight, Øresund issues will be handled as a result of this reform. Despite the impediments set out above, the Øresund Region is seeing a rapidly expanding housing and labour market. Since the bridge s opening, approximately 12,000 Danes have moved to Skåne of whom 8,000 have settled in the Malmö area. A substantial number have continued working in Denmark while commuting across Øresund. Most commuters, however, are Swedes working in Denmark. Towards the end of 2004, around 7,000 individuals commuted across the Øresund Bridge on a daily basis. Businesses are also sending out clear signs that they are seriously beginning to see the opportunities on the other side. Danish companies have been especially active with regard to setting up businesses in Sweden during the year. The Øresund Bridge will continue to work actively to stimulate the integration of the Øresund Region and to build new bridges. This is partly because of the importance of integration to the company s finances and partly because this is the primary reason why the bridge was built in the first place. Further information about traffic and integration is available in the publication entitled Facts Worth Knowing about the Øresund Bridge, which is being published at the same time as the Annual Report. 6 / Ø R E S U N D S B R O K O N S O R T I E T

9 House moves between Skåne and Zealand Frome Zealand and the islands to Skåne Frome Skåne to Zealand * *Estimate for 2004 Commuters between Copenhagen and Skåne, Reasons for travelling with regard to passenger car traffic on the bridge in 2004, Leisure and short breaks 38% Holidays 13% Business 29% Commuting 20% Ø R E S U N D S B R O K O N S O R T I E T / 7

10 One in five cars is a commuter vehicle In 2004, traffic on the Øresund Bridge rose by 14 % on 2003 or twice the figure expected at the beginning of All vehicle categories are showing increases but the main rise is accounted for by commuter and business traffic. Commuting has risen by 45% compared to In November 2004, 2,600 commuters crossed the Øresund Bridge every day. The increase also means that more travellers are taking advantage of the Øresund Bridge s discount schemes. The fact that 68% of all passenger car traffic is now using one or other form of discount emphasises the Øresund Bridge s increasing role as a regional bridge. Moreover, the inhabitants of the Øresund Region are learning to exploit the opportunities on the other side. Danes are benefiting from the lower house prices in Malmö and Skåne s rural scenery. The Swedes are making use of Copenhagen s dynamic labour market and rich cultural life. In addition, there are a number of economic factors. Both Sweden and Denmark are experiencing economic growth and from January 1, 2004 tax rules were changed so that bridge tolls are now tax deductible even for commuters from Sweden who pay tax in Denmark. In other words, it is primarily integration that is driving the rise in traffic. From 2001 to 2004, the proportion of commuters rose from 5% to 20% while, over the same period, regional leisure traffic increased by 29%. HGV traffic has gone up by around 10% compared to This is slightly less than is the case with passenger car traffic, but above the forecast from the beginning of the year. Bus and coach traffic has increased by 41%, first and foremost because several new scheduled bus services began to operate across the Øresund Bridge during the year. Average daily traffic across the Øresund Bridge 2003 and 2004 Cars Motor cycles Vans, Lorries Coaches, Total caravans buses , , , ,816 Increase 14% 25% 9% 10% 41% 14% Average daily traffic across the Øresund Bridge ,000 10,000 8,000 6,000 4,000 2, / Ø R E S U N D S B R O K O N S O R T I E T

11 The Øresund Bridge s market share has increased for all vehicle categories The Øresund Bridge s market share of total traffic across Øresund strengthened for all vehicle categories in This shows that a large proportion of the new traffic has gone to the Øresund Bridge as a consequence of the regional development across Øresund. Vehicle traffic between Skåne and Zealand ,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, The Øresund Bridge Elsinore-Helsingborg Ferries Copenhagen-Skåne In total, 28.5 million people crossed Øresund by train or car or on the ferries between Elsinore and Helsingborg. This represents a 6% increase compared to the figure from 2003 (26.8 million). Above all, the Øresund Bridge s increasing market share is accounted for by bus/coach traffic 66% in 2004 compared to 54% in The reason is that a major share of the new bus/coach traffic between Skåne and Zealand and to and from the continent is now via the Øresund Bridge. The market share for passenger cars rose to 65%, i.e. 2 percentage points, while the market share for lorry traffic rose from 37% to 38%. In total, the Øresund Bridge last year carried 63%, or two-thirds, of the traffic across Øresund. The number of persons travelling across the Øresund Bridge rose to approx. 16,850,000 of whom approx. 10,620,000 used the motorway while approx. 6,230,000 travelled by train. This means that the number of people travelling across the Øresund Bridge, including the trains, rose by 11% from 2003 to Travellers across Øresund (approx. figures) Øresund Bridge, cars - 4,760,000 7,990,000 8,850,000 9,470,000 10,620,000 Øresund Bridge, trains - 2,680,000 4,920,000 5,370,000 5,690,000 6,230,000 Øresund Bridge, total - 7,430,000 12,910,000 14,220,000 15,160,000 16,850,000 Dragør-Limhamn 1,580, Hydrofoils Copenhagen-Skåne 3,620,000 3,010,000 1,060, , Elsinore-Helsingborg 14,260,000 13,330,000 11,510,000 11,610,000 11,650,000 11,610,000 Øresund total 19,460,000 23,770,000 25,480,000 25,980,000 26,810,000 28,460,000 Note: Minor changes to the figures may occur compared to previous years. Ø R E S U N D S B R O K O N S O R T I E T / 9

12 All customers can now drive across the bridge at a fixed low price To stimulate traffic growth and meet regional customers wishes for a fixed low price a new product, BroPas, was introduced on January 1, Costing DKK 220 for one year, BroPas offers a discounted price for a twelve month period. This year the price is DKK 125 per single journey. The Øresund Bridge expects BroPas to become the main discount agreement for private motorists. A major share of customers who previously used the ØresundBonus agreement have switched to the new BroPas. At the beginning of the year, some 25,000 customers had switched to BroPas which is far above expectations. Subscribers to the BroPas contract also receive a BroKort which entitles customers to attractive offers for special events, shopping and short breaks on the other side of Øresund. Together with selected partners, the BroKort aims at stimulating travel across Øresund. In Denmark some of the major partners include Tivoli in Copenhagen, the Arts Museum Arken and the holiday village Lalandia. In Sweden, the partners include Hilton Malmö, Astrid Lindgren s World and Malmö Opera and Music Theatre. To make use of these offers, all a customer needs to do is to present their BroKort at their chosen destination. The BroKort is also given to commuters and business customers. A second innovation, is the improvement of the ØresundBusiness agreement, which offers a Multi-Bro- Bizz that can be used with all types of vehicles except coaches and buses. March saw the opening of the new sales office at the toll station at Lernacken. So far, customers have expressed their satisfaction with the new office although this has not resulted in fewer visitors to the two other offices at Stortorget in Malmö and Nyropsgade in Copenhagen. The Øresund Bridge website was given a new design in April and now offers customers an improved service including a private customer inspiration portal with facts and advice about experiences on the other side. A market forum for business customers is under construction to provide better incentives to exploit the entire Øresund market. In August, the fourth customer satisfaction survey was carried out showing that 95% of customers were satisfied with their latest journey despite some criticism of the signage. This will be remedied in connection with the upgrading of the toll station. Average prices for passenger cars (DKK, incl. VAT) / Ø R E S U N D S B R O K O N S O R T I E T

13 Great accessibility and few accidents The Øresund Bridge is a very reliable traffic link. In 2004, the motorway was closed to traffic for just 9.3 hours meaning that the bridge was open 99.9% of the year. The bridge closures were due to technical faults, accidents or risk of accidents and an emergency exercise. To inform customers about restrictions to road traffic as speedily as possible, the Øresund Bridge launched an SMS-based traffic information system which provides SMS text messages directly to customers mobile phones when weather or traffic conditions force the bridge to close fully or partially. The SMS service is organised through the bridge s website and it is free to subscribers. An extensive emergency exercise was held on October 6 simulating a major coach accident in the tunnel. The purpose was to practise communication and co-operation at management level between the Danish and Swedish emergency authorities. The exercise provided valuable experience which will improve the likelihood of saving lives in the event of a major accident on the Øresund Bridge. One accident involving serious injury to persons and three accidents with no resulting injuries occurred during the year. Nevertheless, traffic safety remains extremely high. The number of accidents involving serious injuries has been 0.11 per 10 million kilometres since the bridge s inauguration. No accident on the Øresund Bridge has resulted in loss of life. Accident frequency and number of accidents Accidents involving serious injury per 10 million km since the bridges opening Fatal accidents per 100 million km Number of accidents involving serious injury Number of accidents involving no injury Ø R E S U N D S B R O K O N S O R T I E T / 1 1

14 57,000 trains and high reliability on the Øresund Bridge s rail section A total of 56,955 trains crossed the Øresund Bridge during the year when the reliability of the railway proved very high. Øresundsbro Konsortiet has, met its objectives with regard to reliability on the rail section: Total closure of the railway owing to acute technical faults may not exceed 10 hours per year Rail traffic must not be delayed by technical faults for more than 30 minutes more than once per month Following the upgrading of the neutral section s catenary system, the maximum speed has been increased to 200 km per hour in both directions. The upgrading requires certain changes to the positioning of the signals, which will be carried out during the summer of Rail Net Denmark s renovation of the safety system on the Danish side and part of the Øresund tunnel was carried out between May 20 and May 24, This work involved the suspension of rail traffic but preceded without other complications and caused no problems for control room personnel or drivers. The number of GSM-R radio antenna stations has doubled from two to four. This will ensure more stable radio contact between Rail Net Denmark s operations room and the loco drivers. A total of 50,020 passenger trains and 6,935 freight trains crossed the Øresund Bridge during the year. With effect from January 15, the IKEA Group decided to terminate IKEA Rail AB s operations and transfer its activities to other train operators. Consequently, Raillion took over the services between Älmhult in Sweden and Duisburg in Germany from May 1. In November, the Øresund Bridge signed an agreement with Banverket Produktion concerning service and maintenance of the Øresund Bridge rail section. The agreement takes effect from April 1, 2005 for five years with an option to extend the agreement for a further three years. 1 2 / Ø R E S U N D S B R O K O N S O R T I E T

15 Management training and a new working environment organisation A new training programme for top and middle management was introduced in The programme consists of modules of which several were implemented during the year while others will continue during the spring of The objective is to enhance communication and transparency in the business and to focus on planning, organisational development and staff development. Øresundsbro Konsortiet is committed to maintaining a high standard of working environment. Consequently, office and toll station staff as well as personnel working on the link itself are offered internal working environment courses that guarantee that everyone is well prepared for handling his/her own working environment as well as that of their colleagues. operations organisation. The new organisation rests on the premise that the Øresund Bridge s standards should comply with the strictest requirements of Danish and Swedish working environment legislation, c,f. Environmental Report. From January 1, 2004 all employees are covered by the company s health insurance. Employees also have access to exercise and massage facilities and health checks. Absenteeism among Øresund Bridge employees was 3.7% of the total work time in Øresundsbro Konsortiet joined the employer s organisation, Dansk Industri, on July 1, As a result, the company is now part of the labour market structure in both Denmark and Sweden. In 2004, Øresundsbro Konsortiet launched a new working environment organisation adapted to the Ø R E S U N D S B R O K O N S O R T I E T / 1 3

16 Faults in concrete and steel constructions require repairs under guarantee The guarantee period for the tunnel and bridge constructions will expire in the spring of To ensure against undisclosed faults or deficiencies, systematic inspections of all steel and concrete constructions have been carried out. The inspections revealed some faults which will be remedied in 2005 by the bridge contractor, Sundlink, under the five year guarantee period. The problems with cable oscillations at the high bridge seem to be solved. New oscillation absorbers have been developed to prevent the cables on the high bridge from experiencing abnormal oscillations during high winds and snow or ice. The replacement of the oscillation absorbers was completed in early December. So far, the new oscillation absorbers have functioned satisfactorily also during the hurricane in January The Øresund Bridge has decided to upgrade the toll station starting in 2005 in order to create greater capacity for BroBizz customers, improve signage and enhance the employees safety. The number of BroBizz lanes will be increased from 1 to 4 in each direction. At the same time, the approach to the Bro- Bizz lanes will be shortened substantially in order to reduce speed. New signage will make it easier for customers to navigate the toll station. 1 4 / Ø R E S U N D S B R O K O N S O R T I E T

17 Environmental reports showed positive results In 2004, much of the environmental work centred on the preparations for the Swedish environmental court s decision in two outstanding cases. In June, Øresundsbro Konsortiet applied for permission to keep Lernacken s installation channel and the application was considered by various Swedish authorities in the autumn. These have all taken a positive view of the application. The Environmental Court s decision is expected to be announced on March 22, Øresundsbro Konsortiet has also monitored Sweden s National Board of Fisheries final processing of the investigations prior to the assessment of the possible impact on fishing and the need for measures to maintain fish stocks. The National Board of Fisheries had originally intended to complete its report in the spring of 2004, but the processing of the material demanded more resources than expected. The report was, therefore, completed in January Together with Øresundsbro Konsortiet s report, the material will be submitted to the Environmental Court on March 31, During the year, Øresundsbro Konsortiet worked committedly on monitoring and minimising environmental impact, largely to ensure that all stipulated requirements had been complied with and the necessary documentation submitted to the authorities. This is, for instance, the case regarding the requirements for the company s own audits, measurements of environmental hostile agents in the surface water from the bridge and the maximum thresholds for noise from the bridge abutment at Lernacken. Monitoring of the natural life at the artificial island of Peberholm. In 2004, an investigation of the migration of insects and spiders on Peberholm was carried out in conjunction with Kristianstads Högskola and the University of Copenhagen Video recording and geological tests at the Lernacken Channel in April The investigations have revealed that the channel s flora and fauna correspond to other areas in Øresund of the same water depth and that a certain natural adjustment of the channel s slopes has taken place. Registration of previously dredged areas in the Flintrännan Channel in November The registration shows that these areas all have a natural flora and fauna equivalent to the surrounding areas apart from the new navigation channel where the passage of larger vessels impedes the re-establishment of flora and fauna. The completion of the survey of flora and fauna at selected bridge piers which was launched in The survey confirms that substantial numbers of common mussels now thrive on the bridge piers concrete surfaces. The result of the environmental work and its impact on the environment in 2004 are set out in greater detail in Environmental Report 2004 which is published separately. In addition, Øresundsbro Konsortiet has implemented a range of measures designed to meet the company s own environmental objectives for 2004: Ø R E S U N D S B R O K O N S O R T I E T / 1 5

18 ECONOMY Result for the year Profit before depreciation and financial items for 2004 totalled DKK 818 million, representing an improvement of DKK 79 million or 11% on the year. This is due to increased revenue from road traffic of DKK 70 million (12%) and a reduction in operating expenses of DKK 13 million (4%). The result is DKK 35 million up on the budget. Revenue from road traffic was approx. DKK 30 million higher than the budget, which is largely due to the fact that traffic growth doubled compared to the budget. The most significant increase was accounted for by commuter and business traffic with its discounted prices, which means that the growth in traffic revenue did not match the increase in traffic volume. (See page 8). Other revenue derives primarily from the Danish national Rail administration (Banedanmark) and the Swedish National Rail Administration (Banverket) which, according to the government agreement between the two countries, pay a fixed fee of DKK 300 million (1991 price levels), corresponding to DKK 408 million in 2004, for use of the link s railway. The result was also affected by a positive development in operating expenses which were DKK 13 million less than forecast, i.e. because of reduced costs for winter services/winter maintenance of the motorway. Interest expenses amounted to DKK 676 million or approx. DKK 149 million lower than expected. The reason for this substantial difference is partly the early redemption of high interest loans in 2003, which reduced the ongoing interest expenses in 2004 by approx. DKK 63 million and partly lower than anticipated interest rates. The exchange rate adjustment shows gains of DKK 19 million, while the fair value adjustment amounts to a loss of DKK 466 million, mainly as a result of falling long-term interest rates during The overall result for the year amounts to a loss of DKK 180 million before exchange rate and fair value adjustment and DKK 627 million after these items. Budget DKK million Road traffic revenue Other revenue Total income ,021 1,087 1,145 Operating expenses Profit before depreciation and financial items Depreciation Interest expenses Loss before exchange rate and fair value adjustment Exchange rate adjustment* Fair value adjustment* Profit/loss for the year , * The impact for 2004 on the result from currency options is included in the item, exchange rate adjustment. This item was previously included in the fair value adjustment. As the comparative figures for 2003 have been adjusted accordingly, DKK 13 million has been transferred from the fair value adjustment to exchange rate adjustment. 1 6 / Ø R E S U N D S B R O K O N S O R T I E T

19 Expectations for 2005 The annual result before fair value adjustment and adjusted for depreciation demonstrates the impact of the cash flow from operations on Øresundsbro Konsortiet s debt. In 2004 the result before depreciation and financial items exceeded interest expenses by DKK 161 million and thus contributed to a reduction in the net debt. The aim of reducing the debt has, therefore, been achieved four years earlier than expected, c.f. Annual Report This is owing to a combination of higher revenue from road traffic, lower operating expenses and lower interest expenses. In addition, the accounting debt is affected by the fair value adjustment and investments incurred. Developments in Øresundsbro Konsortiet s finances are illustrated in the diagrams below which shows the development in operating expenses in relation to road traffic revenue and in the cash flow from operations in relation to the net interest income and expense and similar items. Øresundsbro Konsortiet s annual result is expected to show a loss for 2005 of approx. DKK 200 million before exchange rate and fair value adjustment. This includes an expected increase in the operating result of DKK 42 million and an increase in net interest income and expense and similar items of DKK 64 million. Revenue from road traffic is estimated to rise by approx. DKK 50 million, or 8%. Operating expenses are expected to rise by approx. DKK 6 million, among other things as a result of additional marketing promotions for the BroPas product. The expected rise in interest expenses is primarily due to the anticipated increase in short-term interest rates in The budget does not include risk buffers for exchange rate and fair value adjustments. In total, Øresundsbro Konsortiet expects the result before depreciation and financial items to exceed interest expenses by approx. DKK 120 million. Uncertainties in the 2005 budget primarily relate to revenue from road traffic and net interest income and expense and similar items. Road traffic revenue and operating expenses (index 2001=100) Cash flow from operations and financing expenses (DKK million) Road revenue Operating expenses Cash Flow, operations Net Cash Flow Financing expenses Ø R E S U N D S B R O K O N S O R T I E T / 1 7

20 FINANCING Financing policy and borrowing Øresundsbro Konsortiet s financial management is conducted within the framework determined by the Board of Directors and guidelines from the guarantors (The Danish Ministry of Finance and The Swedish National Debt Office, Riksgäldskontoret). The Board of Directors determines a general financing policy, and an annual financing strategy, which regulates borrowing for specific years and sets the framework for the company s foreign exchange and interest exposure. The overall objective is to obtain the lowest possible net interest income and expense and similar items for the project over its lifetime with due regard for known and accepted risk levels. The company is subject to similar financial risks as other companies, but due to the nature of the project operates within a particularly long-term time frame. This means that net interest income and expense and similar items and financial risks are assessed on a long-term perspective whereas short-term fluctuations carry less importance. The company s borrowing for 2004 is described below as well as the most important financial risks. All loans and other financial instruments employed by the Consortium are guaranteed by the Danish and Swedish states. In general, the implications are that the company is able to achieve capital market terms equivalent to those available to governments. A key element in the Consortium s financial strategy is to achieve optimum flexibility in order to be able to exploit developments in capital markets. However, all loan types must meet certain criteria. These are partly based on requirements from the guarantors and partly on internal requirements. In certain cases, there are advantages to borrowing in currencies in which the Consortium cannot expose itself to foreign exchange risks, c.f. below. In such cases, the loans are translated through swaps to acceptable currencies so that there is no direct link between the original loan currencies and the Consortium s currency risk. In 2004, the Consortium raised loans for over DKK 5 billion, which were primarily used for paying off existing loans. Loans to the value of NOK 1.3 billion (approx. DKK 1.2 billion) were raised, which were translated to DKK. In addition, index loans (real rate of return loans) were raised for approx. DKK 1.8 billion (see below for more details). A key element in the financial management is the Consortium s objective of maintaining liquidity reserves corresponding to at least six months liquidity consumption. This reduces the risk of borrowing at times when general loan terms in capital markets are unattractive. The liquidity reserve also enables the Consortium to purchase its own loans in the market. This helps to ensure a certain minimum liquidity in the loans which, in general, stimulates investor interest in placing funds in these securities. The extent of the company s borrowing in any individual year is largely decided by the size of the repayments on previously raised loans (refinancing). In 2005, such refinancing will be extremely limited as loans are not expected to be raised during the year beyond what is needed for the financing of possible extraordinary redemption of existing loans. 1 8 / Ø R E S U N D S B R O K O N S O R T I E T

21 Foreign exchange risks The Consortium s exposure to foreign exchange risk relates to the fact that part of the loan portfolio is denominated in currencies other than DKK and SEK. In the calculation of the foreign exchange risk, allowances are made for swaps and other financial instruments used as part of the financial management. The guarantors have decided that the Consortium may only have foreign exchange exposure in DKK, SEK and EUR. The SEK exposure increased from approx. 1% to 8.6% of the net debt during the year, which should be seen on the background of a narrowing of the interest rate gap between SEK and EUR and the strengthening of SEK in the second half year. All in all, this meant that, at the close of the year, SEK was a more attractive borrowing currency than the previous year. On the backdrop of the Danish stable fixed exchange rate policy, exposure in EUR is deemed not to represent any substantial risk. The proportion of EUR in the loan portfolio will depend on the exchange rate and interest rate relationship between EUR and DKK over the coming year. Debt portfolio s currency distribution EUR 63.9% DKK 27.5% SEK 8.6% Debt portfolio s currency distribution EUR 63.4% DKK 36% SEK 0.6% Ø R E S U N D S B R O K O N S O R T I E T / 1 9

22 Interest rate risks The Consortium s interest rate risk is actively managed through the use of swaps and other financial instruments. For strategic reasons, the preference is to have a relatively large proportion of the loan portfolio bearing floating-rate interest. The explanation is that the Consortium s main source of revenue (road traffic) is particularly dependent on the business cycle where low economic growth typically results in low traffic growth and, therefore, unfavourable developments in revenue. As economic slowdown is usually characterised by lower interest rates (especially in the short-term end of the term), this type of risk can, to some extent, be offset by keeping a large proportion of the debt in floating-rate interest loans. Furthermore, the Consortium has a strategic interest in index-based loans (real rate of return loans) where the interest charges comprise fixed real rate of return plus a supplement dependent on general inflation. The reason is that the company s revenue by and large can be expected to follow inflation development as both road fees and rail revenue are normally indexed. Index loans, therefore, represent a very low level for the company s long-term risks. For a number of years, however, it has been difficult to obtain real rate of return interest loans at sufficiently favourable terms. It has been particularly difficult to obtain these loans with Danish inflation indexing whereas a well functioning market has existed in SEK for a number of years. The significant improvement in the Danish market in 2004, however, meant that the Consortium s real rate of return exposure increased significantly to approx. 25% of the net debt. The exposure was created both as real loans and by swaps, both with relatively long maturity (15-20 years). The average real rate of return on the index loans and swaps raised in 2004 was approx. 2.7%, which is assessed to be highly favourable in view of the long-term nature of the finances. As well as the above-mentioned strategic elements, the interest rate risk is, of course, also managed on the basis of the specific expectations for the shortterm interest rate developments. The historically low interest rate levels in 2004 were used to convert part of the Consortium s debt from fixed rate interest with a relatively short maturity (2-3 years) to fixed rate interest with a relatively long maturity (7-10 years). The term of the company s debt (excluding index exposure) thus increased from approx. 2.0 years to approx. 2.6 years. For a number of years, the Consortium has sought to minimise the risk relating to its floating rate debt by fixing the interest in a given interval (so-called cap/ floor or collar structures) or by direct purchase of cap hedgings (agreement on maximum interest rate on a floating rate debt). However, in 2004, it was not advantageous to enter into such arrangements. Previous years cap hedgings mean that the interest rate of approx. 25% of the floating rate debt cannot exceed 4% over the next approx years. As a consequence of the accounting policies, the company s future annual results will be strongly influenced by fluctuations in the so-called fair value adjustment which is mainly determined by developments in general interest rate levels. As described on page 16, there was a significantly negative effect on the result for 2004 owing to the fair value adjustment, while in 2003, the effect was positive. The fair value adjustment, however, has no real impact on the finances or the repayment period. The management of the interest rate risk, therefore, aims at achieving the lowest possible, longer-term interest expenses before fair value adjustment. Fluctuations in the fair value adjustment do not form part of the measurement paramaters. 2 0 / Ø R E S U N D S B R O K O N S O R T I E T

23 Credit risks The Consortium s expects 2005 to see a certain increase in general interest rate levels.this, however, is only expected to impact marginally on the result before fair value adjustment. A relatively large interest rate increase has been incorporated into the company s long-term profitability calculations, c.f. section on profitability. Debt portfolios interest rate distribution % 40% 30% 20% 10% 0% Floating-rate Fixed rate Index/real rate of return Of which interest covered Debt portfolios interest rate distribution % 40% 30% In connection with the placement of excess liquidity and in respect of swaps and other financial transactions, a credit risk arises on the counterpart. This risk is managed and continually monitored through a particular line and limit system which sets out the principles for the calculation of these risks and sets the limits for the acceptable risk in respect of each counterpart. The limit is based on the counterpart s rating with the international credit rating providers (Moody s, Standard & Poor s and Fitch/IBCA). In addition, the company aims at reducing each individual risk through appropriate documentation for each contract. In this respect, specific agreements regarding security (so-called CSA agreements) have been entered into with a number of counterparts. From and including January 1, 2005, the company will only enter into swaps and similar financial transactions with counterparts where CSA agreements are in place. In this way, the credit exposure through swaps etc. is reduced to an absolute minimum. The Consortium s credit risks are concentrated on counterparts with AAA or AA ratings. New transactions are only entered into with counterparts with at least an AA rating or if a CSA agreement is in place A1/A+ rating. It is the Consortium s view that the risk of credit losses on financial counterparts remains insignificant. 20% 10% 0% Floating-rate Fixed rate Index/real rate of return Of which interest covered Ø R E S U N D S B R O K O N S O R T I E T / 2 1

24 Financing result The Consortium s financing result are given in further detail in the table. In general, real interest expenses in 2004 were lower than budgeted because of the continued low short-term interest rates during the year against the expected rise in interest rates. The exchange rate adjustment resulted in gains stemming mainly from the fall in SEK towards the end of the year. In addition, the financing result is affected by a technical item, the fair value adjustment, which had a significantly negative effect on the result in 2004 against a strong, positive effect in The fair value adjustment, which is a consequence of the Danish Financial Statements Act of 2002, means that all loans and financial instruments are assessed at fair value and that all changes in the fair value within a period impact on the result for the period. Fluctuations in the fair value adjustment do not affect the size of the actual interest and instalment payments on the debt nor the repayment period. Consequently, the debt s size and the real rate of return before fair value adjustment remain crucial financial parameters 2 2 / Ø R E S U N D S B R O K O N S O R T I E T

25 Financial key figures End 2004 DKK % per annum Borrowing billion Total gross funding (fair value) 22.7 billion Net debt (fair value) 20.5 billion Interest expenses 676 million 3.34 Exchange rate adjustment +19 million 0.09 Fair value adjustment -466 million 2.30 Total net interest income and expense and similar items 1,123 million 5.55 Real rate of return 2004 (before fair value adjustment) 1.83 Real rate of return (before fair value adjustment) 1.94 Interest rate development in 2004 Ø R E S U N D S B R O K O N S O R T I E T / 2 3

26 Profitability Øresundsbro Konsortiet s debt will be repaid from revenue from the road and rail link. With the updating of the calculation assumptions in the autumn of 2004, the traffic scenarios were revised on the basis of the experiences of the past year as well as the expectations for the coming year. The effects of the launch of the new BroPas product were also incorporated. As a result of the uncertainties concerning future traffic development, the Consortium has set out three possible scenarios for future traffic development. The growth scenario assumes that the Øresund Region s integration will accelerate over the coming years and that the Danish and Swedish economies will grow. Annual traffic growth is assumed to fall from 13% in 2005 to 3% in The middle scenario envisages a continuation of the region s current (positive) development alongside moderate growth in the national economies. Annual traffic growth will fall from around 9% in 2005 to 2% in The stagnation scenario assumes a rapid slowdown in integration and low economic growth over the coming years. Annual traffic growth will fall from around 5% in 2005 to 1% in For all three scenarios, developments over the next years will be crucial for the Øresund Bridge s profitability because this is when the interest burden will be greatest. The high growth in the first years is generated by a general rise in traffic across Øresund and the dismantling of the economic and cultural barriers between Denmark and Sweden. This growth is a result of the technical, economic and demographic development in the Øresund Region and has historically exceeded domestic traffic growth in Denmark and Sweden. Traffic across Øresund remains at an abnormally low level as a result of the barriers which are expected to be lowered over the next years resulting in increased traffic growth. A long-term real rate of return of 4% per annum is deemed realistic. In view of current interest rate levels, the real rate of return assumption is fairly high, which is primarily due to the extended time frame and the consequent uncertainties. For the years until 2010, a lower real rate of return has been assumed. This should be seen on the backdrop of the reduction in the interest rate risk mentioned in the interest rate risks section. The Consortium thus expects the company s debt to be repaid approx. 35 years after the opening of the fixed link (middle scenario). The main uncertainties in the calculations relate to the long-term traffic development and the real rate of return, c.f. table. The Consortium s finances, including the repayment of the debt are, however, relatively robust with regard to changes to the assumptions. In the event of the stagnation scenario, the repayment period will increase significantly, albeit these fluctuations have been reduced compared to previously. The Øresund Fixed Link s landworks were constructed and financed by A/S Øresund (Denmark) and SVEDAB AB (Sweden), Øresundsbro Konsortiet s parent companies, which each hold a 50% stake in Øresundsbro Konsortiet. As revenue is generated almost exclusively by Øresundsbro Konsortiet, the Consortium must pay a dividend to the parent companies in order to ensure repayment for the landworks. 2 4 / Ø R E S U N D S B R O K O N S O R T I E T

27 The repayment period for the Consortium s debt assumes a dividend payment in accordance with the general guidelines in the Consortium Agreement between the two parent companies. The first dividend payment is expected approx. 22 years after the opening of the fixed link, which is three years earlier than previously assumed. The advancement of the dividend payment is a result of Øresundsbro Konsortiet s improved finances, c.f. the section on the year s result. As calculated, Øresundsbro Konsortiet will produce a loss for a number of years. Changes to the calculation assumptions will, therefore, also impact on the profitability of Øresundsbro Konsortiet as well as the parent companies. For more details of the repayment period for the landworks, please refer to the respective parent companies annual reports. Repayment periods for Øresundsbro Konsortiet under the alternative assumptions for real rate of return and traffic scenarios (years from commissioning in 2000) Traffic scenario Real rate of return 3% 3.5% 4% 4.5% 5% Growth 29 years 29 years 30 years 30 years 31 years Middle 34 years 34 years 35 years 35 years 36 years Stagnation 47 years 48 years 48 years 49 years 51 years Ø R E S U N D S B R O K O N S O R T I E T / 2 5