HCI Hammonia Shipping AG

Transcription

1 HCI Hammonia Shipping AG Annual Report 2011

2 Key figures Ship portfolio Vessel Date of acquisition Capacity in TEU Year of construction MS SAXONIA 03/12/2007 3, MS WESTPHALIA 03/12/2007 3, MS HAMMONIA POMERENIA 29/11/2007 2, MS HAMMONIA FIONIA 29/04/2008 7, MS HAMMONIA DANIA 06/05/2008 7, MS HAMMONIA HAFNIA 16/05/2008 7, MS HAMMONIA HOLSATIA 21/05/2008 2, MS HAMMONIA TEUTONICA 06/06/2008 2, MS HAMMONIA MASSILIA 20/10/2008 2, MS HAMMONIA ROMA 05/01/2009 2, MS HAMMONIA BAVARIA 05/01/2009 2, MS HAMMONIA PESCARA 29/12/2010 4, MS ANTOFAGASTA 10/02/2012 2, Key financial indicators in EUR Change 2011/2010 in % Vessel operating result 41,696 40,929 42, Result from shipping operations 40,559 43,467 40, Earnings before interest and taxes (EBIT) 17,174 21,067 13, Consolidated net result for the period ,834-2, Cash flow from operating activities 22,948 29,382 22, Cash flow from investing activities 116 1,375-52, Earnings per share EUR EUR EUR HCI Hammonia Shipping AG Annual Report 2011

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4 Contents Welcome address 2 The company 4 Business objectives and strategy 4 Business model 5 The share 6 Consolidated management report 8 Key business conditions and general framework 8 Profit/loss, financial position and assets and liabilities of the Group (according to IFRS) 11 Non-financial performance indicators 17 Subsequent events 17 Risks and opportunities 18 Outlook 21 Basics of the remuneration system 22 Profit/loss, financial position and assets and liabilities of the holding company HCI HAMMONIA SHIPPING AG 23 Reporting in accordance with Sections 289 (4), 315 (4) HGB 25 Statement on corporate governance 26 Corporate governance report 27 Konzernabschluss 32 General information 38 Notes to the consolidated statement of financial position 46 Notes to the consolidated statement of cash flows 61 Notes on segment reporting 62 Other disclosures 62 Responsibility statement 87 AG-Jahresabschluss 90 Supervisory Board report 94 HCI Hammonia Shipping AG Annual Report 2011

5 HCI HAMMONIA SHIPPING AG The business concept of HCI HAMMONIA SHIPPING AG is focused on the acquisition, operation and sale of merchant ships. Its emphasis is placed on up-to-date container ship tonnage. The current fleet of HCI HAMMONIA SHIPPING AG includes altogether 13 container vessels in the size categories 2,500 TEU, 2,870 TEU, 3,100 TEU, 4,250 TEU, and 7,800 TEU. As a management holding company in the legal form of a listed corporation, HCI HAMMONIA SHIPPING AG holds interests in shipping companies organized in the legal form of limited partnerships with a limited liability company as general partner (GmbH & Co. KG) which are the owners of the respective vessels. HCI HAMMONIA SHIPPING AG is merely an asset holder, i.e. the company has no employees. All services are provided by means of outsourcing. HAMMONIA Reederei GmbH & Co. KG attends to all responsibilities in connection with the operation of all ships. The shipping companies provide the ships charterers with fully equipped, operational and manned vessels. According to the business model of HCI HAMMONIA SHIPPING AG, the ships are chartered out to liner trade companies with high credit ratings for long terms and/or proceeds are pooled with those of other ships of the same size in order to safeguard revenues against fluctuating charter rates and the risk of a ship s discontinued operation. The revenue pools are managed by the renowned shipping company Peter Döhle Schiffahrts-KG. Due to the overall approved additional capital stock of EUR 6.8 million (referring to the share capital) and the overall approved profit participation capital in the amount of EUR 75.0 million, HCI HAMMONIA SHIPPING AG is given the opportunity of continued growth through the expansion of the fleet. Especially in the still difficult current environment for closed-end ship funds, opportunities open up for acquiring ships at favorable conditions. After this strategy had been successfully pursued already in financial year 2010 with the acquisition of a controlling interest in MS HAMMONIA PESCARA, negotiations were held in the year 2011 on the acquisition of another vessel, namely the container ship MS ANTOFAGASTA. This transaction was closed successfully in February Due to the structure of HCI HAMMONIA SHIPPING AG, the specific advantages linked to the shipping companies legal form of the GmbH & Co. KG, e.g. the so-called tonnage tax, are maintained. At the same time, HCI HAMMONIA SHIPPING AG taps the capital market as a funding source for future corporate growth. Through the stock exchange listing new investor Groups without any previous access to an investment in shipping companies can be addressed. Short Portrait 1

6 1. Welcome address Dear shareholders and business associates, HCI HAMMONIA SHIPPING AG continues to face a difficult market environment in container shipping. The first half-year 2011 of the tramp shipping sector was initially still determined by a continuing recovery of time charter rates. In addition to that, the number of container ships out of operation kept going down significantly, reaching a new low since the beginning of the global financial and economic crisis in the third quarter of 2008 with 0.5 % of total fleet capacity by mid-year. However, the market went on a considerable decline in the second half-year The background of this development was the fading growth dynamics of the global trade caused not least by new uncertainty among European consumers with respect to the medium and long-term consequences of the public debt crisis. The still clearly positive yet weakened growth rate on the demand side met with a growing fleet of container ships due to shipyard deliveries of large container vessels commissioned by the liner shipping companies during pre-crisis times. As a result of this, the number of laid-up container ships went up again during the second half-year and came to about 4 % of the global fleet capacity at the end of the year At the same time freight rates, transport costs for an individual container, increasingly came under pressure in the course of the year and were significantly below cost covering prices in the second half-year. This trend is primarily accountable for by fierce competition of the major liner shipping companies for utilizing available capacity and expanding or defending market share. This resulted in losses incurred by liner shipping companies on the one hand; yet with a certain delay the charter rates for container ships decreased significantly again. At present charter rates can be assumed to have bottomed out at a level above the most recent lows. That being said, charter rates are still far below their longterm average and therefore not sufficient for ship owners. A positive aspect is that liner shipping companies after suffering substantial losses over the past year currently seem to strive for sustainable profitability of their business models. The freight rate increases recently asserted in the market are an essential condition for charter rates to increase in the medium term. With its concept of mixing medium to long-term charter agreements on the one hand with pool operation on the other hand, HCI HAMMONIA SHIPPING AG managed to cushion the negative market development in part yet not disconnect completely from it. Compared to the prior-year period, the vessel operating result increased in the past financial year by roughly 2 % to EUR 41.7 million. The controlling interest in the 4,250 TEU container vessel MS HAMMONIA PESCARA, acquired at the end of 2010, made its contribution to this result. The consolidated net result for the period is slightly negative, at approximately EUR 0.2 million, while a net income of EUR 4.8 million could be reported in the previous year. The essential reasons for this are other non-cash operating income and expenses. While the prior-year result was positively influenced by write-ups on fixed assets as well as by foreign exchange gains, the result of the year under review is affected by foreign exchange losses from the valuation of euro liabilities and Japanese yen loans. In February 2012 HCI HAMMONIA SHIPPING AG managed to acquire the controlling interest in a 2,872 TEU container ship within a transaction frame comparable to the acquisition of the MS HAMMONIA PESCARA. The MS ANTOFAGASTA was constructed in the year 2008 and is currently operated under an adequate time charter agreement with a highly rated charterer. This investment was also financed by means of the issue of profit participation capital. The fleet now consists of 13 container ships in sizes between the Sub-Panamax and Post-Panamax classes. The acquisition of these two ship investments was made possible by the corporate measures resolved in the year 2010 and makes its contribution to diversifying the fleet and tapping future income potential. 2 HCI Hammonia Shipping AG Annual Report 2011

7 The future prospects are essentially determined by the development of the ratio of supply and demand. For the next two years, this ratio is expected to be more or less even, thus initially slowing down the recovery in the market. However, the growth of the container ship fleet predominantly takes place with respect to large container vessels in excess of 10,000 TEU slots. To the degree that the growth in demand continues in feeder traffic as well where feeder ships are protected from being squeezed out by larger container vessels due to technical restrictions in the ports, a recovery of the pool rates of the 2,500 TEU and 3,100 TEU ships of HCI HAMMONIA SHIPPING AG can be expected for the medium term. In the current year, the development of the liquidity position, comfortable at present, has to be constantly monitored, though. For this purpose, the company will enter into negotiations with the banks financing the pool ships with regard to options for further deferments of repayment. The goal is to position HCI HAMMONIA SHIPPING AG in such a way that the company will be able to benefit from the sustainable market recovery right at the beginning in the best possible way. Hamburg, 17 April 2012 Dr Karsten Liebing Management Board Jan Krutemeier management Board Dr Karsten Liebing Vorstand Jan Krutemeier Vorstand Welcome Address 3

8 2. The company 2.1 Business objectives and strategy Attractive return on our shareholders investments HCI HAMMONIA SHIPPING AG aims at generating an attractive and sustainable return for our shareholders. Value enhancement potential for the share is intended to be created in the medium and long term. With its fleet of up-to-date seagoing vessels and their operation with qualified personnel, HCI HAMMONIA SHIPPING AG is on the right course to positioning itself in the shipping markets as a reliable provider of high-quality transport capacity. Additional return opportunities are provided by the focused utilization of cyclical market fluctuations with regard to the purchase and sale of vessels. Focus on container shipping HCI HAMMONIA SHIPPING AG focuses its ship investments on the segment of container shipping. Over the past 20 years, the worldwide container turnover has recorded average annual growth rates of about 9 %. The increasing international division of labor in the course of the liberalization of trading and the decentralization of production processes led to a disproportionate growth of the global trade, more than 90 % of which is handled by means of seagoing vessels. Container shipping is the industry to benefit the most from the rising volume of the movement of goods. Following the drastic slump in trading volume in the year 2009, the global container turnover climbed close to 13 % in the year An increase of about 9 % is assumed for the year In the medium and long term, the international division of labor will continue to increase, thus leading to sustainable growth in container turnover. On the demand side, goods are gaining in importance for whose transport containers are ideally suited. On the supply side, the considerable expansion of the container vessel fleet and the faster loading and unloading of container ships are crucial factors as shorter periods of lay days spent in ports are thus made possible. Similar to the development in international aviation, structures are being established in maritime trade that involve large container ports of transshipment (so-called hubs), supplied with a growing share of containers by feeders (feeder traffic). Cargo is then reorganized and sent up to other hubs or the actual ports of destination (hub & spoke concept). The driving forces behind the emergence of these structures and their rising share of transshipment are the cost advantages of larger container vessels used for the long distances in intercontinental trade as well as the increasing degree of containerization even in smaller ports. These general growth drivers of maritime trade are not even suspended by economic fluctuations but cushioned temporarily at most. Professional management The success of business activities is influenced essentially by the access to attractive investment targets. This is assured, among other aspects, by the business relationships forged over many years by the Management Board and the operator, HAMMONIA Reederei GmbH & Co. KG, the industry know-how of HCI Concept GmbH & Co. KG (formerly HCI Hanseatische Schiffsconsult GmbH), and the good access to the charter markets of Peter Döhle Schiffahrts-KG, managing the operation of the ships and serving as pool manager at the same time. The financing of the fleet of HCI HAMMONIA SHIPPING AG shows a solid capital structure of about 30 % equity and about 70 % borrowed capital. The equity was generated primarily by the cash inflow from the capital increase within the framework of the IPO of HCI HAMMONIA SHIPPING AG. Borrowed capital has been provided for the long term by ship-financing banking institutions. About two thirds of the borrowed capital is subject to medium-term interest rate hedging. 4 HCI Hammonia Shipping AG Annual Report 2011

9 2.2 Business model Market opportunities The growing world population, the increasing globalization and international division of labor as well as the transformation of previous developing countries and emerging markets into industrialized countries have resulted in a steady increase of global trade volumes in the past years. The average annual growth rate of the global container turnover came to roughly 9 % in the period from 1985 to Corporate structure, ship portfolio and management Investors Equity provided by institutional investors, e.g. insurance companies, banks, HAMMONIA Reederei HCI HAMMONIA SHIPPING AG Paid-in equity Investments Capital borrowed from banks 2,500 TEU MS HAMMONIA POMERENIA MS HAMMONIA BAVARIA MS HAMMONIA Roma MS HAMMONIA TEUTONICA MS HAMMONIA HOLSATIA MS HAMMONIA MASSILIA 2,870 TEU MS ANTo- FAGASTA 3,100 TEU MS SAXONIA MS WESTPHALIA 4,250 TEU MS HAMMONIA PESCARA 7,800 TEU MS HAMMONIA Fionia MS HAMMONIA Hafnia MS HAMMONIA Dania Operation PD 2,500 pool altogether 63 ships 5-year time charter with Maersk PD 3,100 pool altogether 17 ships 5-year time charter with UASC 10-year time charter with Maersk The ship portfolio currently comprises 13 container ships of the Sub-Panamax, Panamax, and Post-Panamax classes with a total capacity of 57,017 TEU. The six ships of the Sub-Panamax class are used between Asia and Africa, on Europe- Africa routes, and between North and Central America and Europe. The Panamax vessels MS WESTPHALIA and MS SAXONIA operate between China and India, MS ANTOFAGASTA operates between Central America and the Black Sea, and MS HAMMONIA PESCARA is used between the Red Sea and the Persian Gulf. The three Post-Panamax ships run on East-West routes between Asia and Europe or rather North America s East Coast. The Company 5

10 The operation of the ships is provided exclusively by HAMMONIA Reederei GmbH & Co. KG. Ship operation includes all business and legal transactions, from the ships supply with lubricants, spare parts, consumables and equipment to manning and maintenance up to payment transactions and the closing of necessary insurance contracts. Special emphasis is placed on the conservation of the ships value by applying high quality requirements to all measures of maintenance and repair. A good, above-average technical condition of the vessels means increased desirability on the charter and second-hand markets. The shipping trade is a cyclical business with partially high volatility in the charter markets as well as the sale and purchase markets. In order to attain as steady revenues from chartering out the ships as possible, the volatility of the charter markets is counterbalanced by long-term charters and pool arrangements. The volatility of the sale and purchase markets, however, is intended to be used for the targeted generation of revenues from the sale and purchase of ships in the long term. 2.3 The share Over the first months of the year 2011, the share of HCI HAMMONIA SHIPPING AG benefited from the initial hopes of an economic upswing and rising charter markets. The stock price recovered significantly from EUR 550 at the beginning of the year to over EUR 660 as of 16 May. In the course of the year, the debt crisis in the United States and in Europe resulted in considerable uncertainty and fears that some national economies might slide into a recession again. This development led to declining stock prices worldwide on a broad front. The DAX lost roughly 16 % over the reporting period, the MSCI World Index went down by 8 %. The HCI HAMMONIA SHIPPING AG share could not disconnect from this trend. By the end of the year 2011, the stock of HCI HAMMONIA SHIPPING AG was quoted at EUR The weak performance of the HCI HAMMONIA SHIPPING share particularly of the second half-year must be regarded against the backdrop of the developments in the industry. In addition to the overcast economic environment, declining charter rates due to the fierce competition for market shares in container shipping affected the share price as well. The ShipInx, the shipping industry s reference index, lost some 36 % of its value in the year With a price drop of about 20 %, the share of HCI HAMMONIA SHIPPING AG at least managed to disassociate itself from the extremely weak performance of the ShipInx. The reasons for this should be the stabilizing effects of the long-term charter agreements with highly rated liner shipping companies and pool operation. Stock price performance of HCI HAMMONIA SHIPPING AG (in EUR) / / / / / HCI Hammonia Shipping AG Annual Report 2011

11 As the shipping industry, and thus HCI HAMMONIA SHIPPING AG, has always depended strongly on the global economic performance, a positive stimulus for the share can only be expected to come with sustained brightening prospects of the global economy. Due to the predominant placement with institutional investors with long-term investment horizons, the stock of HCI HAMMONIA SHIPPING AG has shown a low level of liquidity in stock exchange trading. Approximately 20 % of the shares in HCI HAMMONIA SHIPPING AG are held by savings banks, Raiffeisen cooperative banks, and Volksbank cooperative banks, about 27 % are held by insurance companies and pension funds, some 27 % are held by other banks, roughly 10 % are held by HAMMONIA Reederei GmbH & Co. KG, about 9 % are held by asset management companies and roughly 3 % by other institutional investors. The free float amounts to some 4 % of the shares. HCI HAMMONIA SHIPPING AG does not hold treasury shares. Relative stock price performance of HCI HAMMONIA SHIPPING AG against selected stock indices (in %) / / / / /2011 HCI HAMMONIA Shipping AG MSCI World Index ShipInx DAX Index Basic data on the share of HCI HAMMONIA SHIPPING AG WKN/ISIN A0MPF5/DE000A0MPF55 Stock symbol/reuters/bloomberg HHX.HAM/HHX.DE/HHX.GR Type of shares No-par common bearer shares Number of shares 136,414 Stock prices (01/01/ /12/2011) High 16/05/2011 EUR Low 02/12/2011 EUR First 03/01/2011 EUR Last 30/12/2011 EUR Market capitalization 30/12/2011 EUR million The Company 7

12 3. Consolidated management report 3.1 Key business conditions and general framework General information As a listed shipping holding company, HCI HAMMONIA SHIPPING AG has the legal form of a German stock corporation and is quoted on the regulated market of the Hanseatische Wertpapierbörse Hamburg (Hamburg Stock Exchange) and on the unofficial regulated markets of the other German stock exchanges. HCI HAMMONIA SHIPPING AG aims at establishing a fleet of up-to-date seagoing vessels and operating them in fastgrowing segments of the container shipping industry in order to generate a sustainable return for the shareholders. The Group thus generates revenues from the operation of ships. HCI HAMMONIA SHIPPING AG had twelve seagoing vessels in service in financial year As the controlling Group company and managing holding company, HCI HAMMONIA SHIPPING AG manages the individual ship investments of the respective subsidiaries. As of 31 December 2011, HCI HAMMONIA SHIPPING AG has direct investments in altogether 14 companies with the following compulsory contributions of capital according to the respective articles of partnership: MS SAXONIA Schiffahrts GmbH & Co. KG (EUR 10,226k) MS WESTPHALIA Schiffahrts GmbH & Co. KG (EUR 10,226k) MS HAMMONIA POMERENIA Schiffahrts GmbH & Co. KG (EUR 11,126k) MS HAMMONIA HOLSATIA Schiffahrts GmbH & Co. KG (EUR 11,176k) MS HAMMONIA MASSILIA Schiffahrts GmbH & Co. KG (EUR 11,326k) MS HAMMONIA TEUTONICA Schiffahrts GmbH & Co. KG (EUR 11,226k) MS HAMMONIA BAVARIA Schiffahrts GmbH & Co. KG (EUR 11,726k) MS HAMMONIA ROMA Schiffahrts GmbH & Co. KG (EUR 11,326k) MS HAMMONIA FIONIA Schiffahrts GmbH & Co. KG (EUR 17,000k) MS HAMMONIA DANIA Schiffahrts GmbH & Co. KG (EUR 17,000k) MS HAMMONIA HAFNIA Schiffahrts GmbH & Co. KG (EUR 17,000k) Verwaltung HCI HAMMONIA Schiffahrts GmbH (EUR 25k) MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG (EUR 10,733k) Verwaltung MS HAMMONIA PESCARA GmbH (EUR 14k) The holdings listed above and HCI HAMMONIA SHIPPING AG itself represent the Group s basis of consolidation. The companies set up in the legal form of GmbH & Co. KG (limited partnership with a limited liability company as general partner) as so-called single-ship limited partnerships are the civil-law owners and operators of the respective ships. Verwaltung MS HAMMONIA PESCARA GmbH serves as the personally liable partner (general partner) in MS HAMMO- NIA PESCARA Schiffahrts GmbH & Co. KG. Verwaltung HCI HAMMONIA Schiffahrts GmbH serves as the personally liable partner (general partner) for the other limited partnerships Business performance The fleet At the end of the year 2011, the fleet of HCI HAMMONIA SHIPPING AG comprised twelve modern container vessels with sizes between 2,500 and 7,800 TEU. 8 HCI Hammonia Shipping AG Annual Report 2011

13 The six ships of the Sub-Panamax class with sizes of 2,500 TEU are operated in a revenue pool managed by Peter Döhle Schiffahrts-KG, comprising altogether 55 ships on annual average. For financial year 2012 an expansion in the number of pool members to 63 ships is scheduled. For the 2,500 TEU ships, pool rates in the year 2011 including an advance payment in connection wit the premature termination of a charter were about USD 13,500/day (including revenues from restructuring CSAV/CCNI). In comparison with 2010 this equals a decline of roughly 1 %. The comparable charter rate in the spot market was about USD 12,900/day on annual average (HAMBURG INDEX, container ship T/C rates, results ). The charter rates agreed in January 2012 for comparable ships were between USD 7,500 and 8,000/day, in consideration of a rising number of laid-up ships. Thus the pool comes out above market level again, at about USD 11,800/day in the first quarter of 2012, at stable ship operation rates. The two ships of the Panamax class with sizes of 3,100 TEU are also under operation in a revenue pool of Peter Döhle Schiffahrts-KG. This pool included 16 comparable ships on annual average Pool rates were about USD 14,500/day in the year 2011 and thus 24 % above prior-year average. The comparable market rates in the spot market were about USD 15,000/day in the year But even in this ship size category, charter rates have meanwhile dropped to USD 7,500/day, reaching a level again that is below the pool rate of about USD 12,100/day paid in the first quarter of this year. The other four ships of the fleet of HCI HAMMONIA SHIPPING AG are under multi-year charter agreements with reputable liner shipping companies. The 4,250 TEU vessel MS HAMMONIA PESCARA is chartered out until mid-2014 to the United Arab Shipping Company (UASC). UASC is among the 20 largest liner shipping companies worldwide. HCI HAM- MONIA SHIPPING AG holds a controlling interest of roughly 56 % in the shipping company behind the MS HAMMONIA PESCARA. The three Post-Panamax vessels of 7,800 TEU each are chartered out to the world s largest shipping company, A.P. Moeller-Maersk, until the year All four vessels under time charter generate the agreed charter revenues on schedule. The combination of ship operation in revenue pools and long-term chartered ships reduces the volatility of charter revenues and minimizes the risk of revenue loss due to temporary non-operation of the ships. HCI HAMMONIA SHIPPING AG thus distinguishes itself by a solid concept of operation. The MS HAMMONIA DANIA suffered a damaged turbocharger of its main engine in mid-march This damage was repaired over a six-day period. Repair costs amounted to roughly USD 1,200,000. From this damage, the company incurred costs in the amount of the franchise, USD 150,000. At the beginning of July an oil pipe of the same ship had a defect in the course of which parts of the engine room had to be cleaned of spilled oil. Total costs incurred by this defect come to around USD 450,000. With respect to this damage, the company will probably incur costs in the amount of the franchise of USD 150,000 as well. Ship operation of the remaining fleet in service was mostly trouble-free and the charterers are highly satisfied with the ships technical performance. Financing There are long-term financing agreements for all ships of the fleet, concluded with banks established in ship financing. On 31 January 2011, HCI HAMMONIA SHIPPING AG and the banks involved signed an addendum to the existing loan agreements, making allowance for the requirements of the 2,500 TEU ships due to stronger volatilities in the market. Accordingly the shipping companies could defer four quarterly payments and establish a liquidity buffer. The current liquidity position provides for the repayment of the upcoming installments. If unfavorable market conditions hold up, it cannot be ruled out from today s viewpoint that further deferments must be requested from the banks. In return for the adjustment of the loan agreements, the credit margins were raised and HCI HAMMONIA SHIPPING AG agreed to provide a certain minimum level of liquidity on the level of the holding company and to vouch for the single-ship companies to a limited extent. The margin level of the adjusted loan agreements is still considerably below the present market level for new ship financing. Furthermore, a reduction of the new margin is provided for once the ships have reached the initially scheduled payment profile. Consolidated Management Report 9

14 For the 3,100 TEU ship MS WESTPHALIA, an addendum to the loan agreement was signed at the end of April 2011 as well. This addendum allows for up to eight deferments of payment and provides for a pay-as-you-earn structure for catching up with the deferments made use of. As of 31 December 2011 the eight possible deferments of quarterly payments had been made use of. In this case it cannot be ruled out either that further deferments must be requested if the market does not recover considerably soon. In return for the adjustment of the loan agreement, the credit margin was raised and HCI HAMMONIA SHIPPING AG agreed to provide a certain minimum level of liquidity on the level of the holding company and to vouch for the single-ship company to a limited extent. Moreover, a reduction of the new margin is provided for once the ship has reached the initially scheduled payment profile. Following lengthy negotiations, there is now also a board resolution of the financing bank for the second 3,100 TEU ship, the MS SAXONIA. The terms and conditions are similar to those relating to the MS WESTPHALIA. Accordingly, it is possible to defer up to eight quarterly payments. As of 31 December 2011 the eight permitted deferments of quarterly payments had been made use of. If the market does not recover considerably soon, further required deferments of payment cannot be ruled out. The draft of an addendum to the loan agreement and the collateral documentation is presently being brought into agreement with the bank and is scheduled for signing soon. With respect to the financing of the three 7,800 TEU container vessels, HCI HAMMONIA SHIPPING AG has been in negotiations for some time with the banks involved regarding the extension of the existing waiver of the loan-to-value clause. This clause stipulates that the ship value without consideration of the charter agreement must not fall below a certain threshold value. Due to the falling ship prices of recent times, that value was undercut in the opinion of the financing banks. HCI HAMMONIA SHIPPING AG has received a draft by the financing banks for an addendum to the loan agreement the terms and conditions of which are still subject to negotiations, though Market development Following the strong growth of 5.2 % in the year 2010, the global economy kept up its course of growth through the year 2011 if at a slower pace. The International Monetary Fund (IMF) expects in its World Economic Outlook of 24 January 2012 an annualized growth of the global economic performance of 3.8 % for 2011 slightly down from the last forecast of September To this growth rate, the emerging markets, showing a 6.2 % increase, make a much larger contribution than the industrialized nations do, at merely 1.6 %. The global trading volume, relevant to the container shipping industry, also continued to increase, if to a lesser degree than anticipated even in the last forecast released by the IMF. At present the IMF estimates the growth in the global trading volume for the year 2011 at 6.9 %. Accordingly the growth dynamics of container traffic slowed down as well in the year Container turnover is expected to grow by 7.9 % in the year 2011 after 12.8 % the previous year (Clarkson Container Intelligence Monthly, January 2012). The highest growth rates are recorded by the North-South routes and the East-West traffic from and directed to the Middle East and the Indian subcontinent. After the number of container ships laid up had gone down from 11.6 % of total fleet capacity in early 2010 to 0.5 % in the middle of 2011, equivalent to the lowest rate in financial year 2011, the number of vessels out of operation began to rise again considerable in mid-june At the end of the year 2011, 3.9 % of the worldwide fleet capacity (246 ships) was not being operated (Alphaliner Monthly Monitor, January 2012). The reason for this trend was the large number of new ship constructions delivered by the shipyards with respective capacity beyond 8,000 TEU coinciding with a slower growth in global trade. While the liner shipping companies were able to report a record year in 2010 concerning their profits, freight rates, i.e. transport costs per container, were on a strong decline in the past year due to the intense competition. The resulting cost pressure increasingly had a negative effect on charter rates beginning in summer After the charter rates for smaller and medium ship sizes up to 4,500 TEU had still shown a positive performance in the first half-year 2011, the charter market stagnated in June 2011 at first. Meanwhile charter rates for all ship sizes have undergone a considerable correction. The container ship time charter rate index (New ConTex), an independent index compiled by a Group of internationally operating ship brokers, reported a 10 HCI Hammonia Shipping AG Annual Report 2011

15 strong increase between the beginning of 2011 to early June 2011 from 557 points to 700 points (+ 26 %). Since then the index has gone down continuously, clocking in at only 405 points at the end of 2011 (- 42 %). In the course of the year 2011 the index dropped 26 %. The declining market development is also reflected by the number of construction assignments. After new ship construction commissions had reached their peak in the first and second quarter 2011 since the beginning of the economic and shipping crisis at the end of 2008, according to information provided by Alphaliner they went down noticeably in the third and fourth quarter. Maersk Broker (Maersk Broker Container Charter Market, November/December 2011, Maersk Broker Container Fleet, January 2012) anticipates a maximum order volume of about 1.7 million TEU for the full year 2011, to be accounted for predominantly by the large ship size classes. The entire order book thus amounts to roughly 28 % of the capacity of the full container fleet currently in service. The deliveries identified so far for the year 2011 come to roughly 1.2 million TEU. About half of these deliveries concern vessel sizes beyond 10,000 TEU (according to Alphaliner and Maersk Broker). 3.2 Profit/loss, financial position and assets and liabilities of the Group (according to IFRS) Profit/loss The key figures indicating profit/loss for financial year 2011 in comparison with the previous year are as follows: in EUR Change Revenues 67,804 62,647 5,157 Vessel operating costs -26,108-21,718-4,390 Vessel operating result 41,696 40, Other operating income 2,727 4,138-1,411 thereof foreign exchange gains 585 1, Other operating expenses -3,864-3, thereof foreign exchange losses -1, Result from shipping operations 40,559 41,860-1,301 Depreciation of property, plant and equipment and amortization of intangible assets -22,921-22, Reversal of impairment loss 0 1,607-1,607 Impairment Earnings before interest and taxes (EBIT) 17,174 21,067-3,893 Interest income Interest expenses -16,613-16, Earnings before share in profit of thirdparty limited partners and before taxes 717 5,038-4,321 Financial expenses from share in profit of third-party limited partners Earnings before taxes (EBT) 295 4,924-4,630 Income taxes Consolidated net result for the period ,834-5,061 thereof attributable to owners of the parent ,834-5,263 thereof attributable to non-controlling interests 1) ) Non-controlling shareholder in Verwaltung MS HAMMONIA PESCARA GmbH. Consolidated Management Report 11

16 The calculation for the reporting period was based on an average EUR/USD exchange rate of (previous year: ). By the acquisition of the MS HAMMONIA PESCARA as of the end of the year 2010, the total number of container chips operated by the Group had gone up from eleven to twelve. Of the twelve container ships, eight are operated in revenue pools (MS WESTPHALIA and MS SAXONIA in the 3,100 TEU pool, and MS HAMMONIA POMERENIA, MS HAMMONIA TEUTONICA, MS HAMMONIA HOLSATIA, MS HAMMONIA BAVARIA, MS HAMMONIA ROMA and MS HAMMONIA MASSILIA in the 2,500 TEU pool). The three 7,800 TEU container vessels MS HAMMONIA DANIA, MS HAMMONIA HAFNIA and MS HAMMONIA FIONIA are operated under ten-year time charters with A.P. Moeller-Maersk and are not included in revenue pools. The 4,250 TEU container ship MS HAM- MONIA PESCARA is chartered out to the United Arab Shipping Company until mid Those container vessels not under operation in revenue pools contribute substantially to the stabilization of the Group s earnings based on long-term time charter agreements. Of the total revenues in the amount of EUR 67.8 million (previous year: EUR 62.6 million), 58 % (previous year: 54 %) were generated by ships under time charter. The increase in revenues compared to the prior-year period by 8.2 % to EUR 67.8 million is essentially due to the addition of the MS HAMMONIA PESCARA. Revenues generated by the 3,100 TEU container ships went up from the prior-year period based on the recovery of the respective shipping markets. For the remaining fleet, however, exchange rate related decreases in revenues were recorded as revenues were made in U.S. dollar and the euro rose against the U.S. dollar on annual average. Revenues include those from pool charters in the amount of EUR 479k (included in the previous year: EUR 5,455k) resulting from the restructuring of liner shipping companies CSAV and CCNI in the previous year, carrying one-off effects. Apart from expenses for the operation of the ships and their insurance, vessel operating costs also include crew expenses. The increase in vessel operating costs by roughly EUR 4.4 million essentially results from the acquisition of the MS HAMMONIA PESCARA. With respect to the other ships, personnel expenses increased on account of the return to normal crew sizes. Net of vessel operating costs, the vessel operating result improved by 1.9 % to EUR 41.7 million. Due to lower other operating income and increased other operating expenses, the other operating result was EUR 2.1 million below the prior-year amount. The other operating income went down by EUR 1.4 million to EUR 2.7 million because of reduced foreign exchange gains for the most part. Other operating income essentially comprises reimbursements of running costs on the part of the charter shipping companies (EUR 1.0 million), foreign exchange gains (EUR 0.6 million), a project fee in connection with the issue of a profit participation right (EUR 0.4 million), and proceeds from the sale of fuel upon a change of charterers (EUR 0.4 million). Foreign exchange gains primarily result from the measurement of foreign currency holdings. Among other items, reimbursements of running costs relate to the reimbursement of costs for security staff on the occasion of passing areas of conflict (since 2011) as well as reimbursement of expenses for lashing material, marine radio service fees, and representation expenses. They were reduced in comparison with the previous year as this position included extraordinary reimbursements for crane constructions in financial year Proceeds from the sale of fuel in connection with changing charterers were reduced by EUR 0.4 million from the previous year. Miscellaneous other operating income results from the release of provisions, insurance refunds, and the settlement of warranty claims. Other operating expenses went up EUR 0.7 million in contrast to the prior-year period of comparison to EUR 3.9 million. This increase is essentially due to an increase in impairment loss on receivables and non-cash foreign exchange losses. Apart from foreign exchange losses from the valuation of a loan denominated in Japanese yen, foreign exchange losses are essentially accounted for by the fact that the single-ship companies prepare their statements of financial position in their functional currency U.S. dollar and therefore have to measure liabilities made out in euro at the respective exchange rate as of the reporting date. The euro liabilities concern among other items uncollected shares in profits held by HCI HAMMONIA SHIPPING AG, to be recognized as liabilities by the subsidiaries and to be valuated at the respective exchange rate as of each reporting date. These liabilities were allocated to the subsidiaries equity in the second quarter which is why no reporting-date measurement is necessary as of 31 December 2011 or in the future. In the amount 12 HCI Hammonia Shipping AG Annual Report 2011

17 of EUR 1.5 million, other operating expenses relate to fees under a consultancy and service agreement between HCI HAMMONIA SHIPPING AG and HAMMONIA Reederei GmbH & Co. KG. HCI HAMMONIA SHIPPING AG has no staff of its own but makes use of the staff of HAMMONIA Reederei GmbH & Co. KG instead for performing its tasks. Other administrative expenses include among other items expenses for the financial audit, tax consultancy and legal fees for all Group companies, costs relating to the stock exchange listing and the legal form, and expenses in connection with the registration of the Group s ships. The result from shipping operations in financial year 2011 thus altogether amounts to EUR 40.6 million, short of the prior-year result by EUR 1.3 million. The six 2,500 container ships acquired over the years 2007 to 2009 as new ships and the MS HAMMONIA PESCARA, bought second-hand at the end of 2010, are subject to depreciation according to the straight-line method over total useful lives of 25 years. Container ships MS SAXONIA and MS WESTPHALIA bought as used ships in the year 2007 are subject to depreciation over remaining useful lives of 21 years each. The three 7,800 TEU container vessels bought second-hand in the year 2008 (MS HAMMONIA FIONIA, MS HAMMONIA HAFNIA, and MS HAMMONIA DANIA ) are subject to depreciation according to the straight-line method on the basis of remaining useful lives of 19 years. Depreciation and amortization of the Group went up only slightly by EUR 0.5 million in financial year 2011 compared with the previous year to altogether EUR 22.9 million as the increase due to the addition of the MS HAMMONIA PESCARA was partly compensated by the lower exchange rate of the U.S. dollar on annual average. Impairment loss on trade receivables was increased by EUR 0.4 million in the financial year. Newly recognized impairment loss related to refund claims against individual charterers of the Group s vessels. Net of depreciation and amortization, the result from operations, the EBIT, coming to EUR 17.2 million in financial year 2011, was EUR 3.9 million below the prior-year result. It must be taken into consideration here that in the previous year a reversal of impairment loss in the amount of EUR 1.6 million as well as foreign exchange gains that were EUR 1.0 million higher than in this financial year (for the most part due to the valuation of euro liabilities in the separate financial statements of subsidiaries) had a positive effect on that result. Despite an increase in liquid assets, interest income is below the prior-year mark. The previous year s amount had been far more affected by the addition of accrued interest on advance payments on service fees. Up to financial year 2010, losses attributable to third-party limited partners were reported under interest income. Beginning this financial year, the share in loss of third-party limited partners is disclosed separately. The prior-year amount has been adjusted accordingly. Compared with the corresponding prior-year period, interest expenses remain virtually unchanged. Ship financing of the MS HAMMONIA PESCARA and interest on a profit participation right issued at the end of 2010 in connection with the acquisition of that holding had increasing effects. In contrast, interest expenses were reduced by the continuing repayment of ship financing loans regarding the 7,800 TEU container vessels. With respect to the pool-operated ships, though, interest expenses went up due to margin increases made by the financing credit institutions in connection with granting deferments of payment. Due to the deferments of payment, the basis on which interest is calculated was not reduced so that no reduction of interest would result. Up to financial year 2010, profits attributable to third-party limited partners were reported under interest expenses. Beginning this financial year, the share in profit of third-party limited partners is disclosed separately. The prior-year amount has been adjusted accordingly. Financial expenses from share in profit of third-party limited partners result from limited partners interests in the Group s single-ship companies held by non-controlling shareholders. According to the IFRS regulatory framework, these non-controlling interests in limited partnerships must be disclosed as borrowed capital even though from the Group s economic viewpoint they represent equity items. Shares in profits attributable to non-controlling interests must therefore be recognized as part of the financial result in profit or loss. The considerable increase over the previous year results from the addition of the MS HAMMONIA PESCARA to the Group, with a non-controlling interest in the limited liability capital of approximately 44 %. In order to clarify the effect on earnings before taxes, we have included the item earnings before share in profit of third-party limited partners and before taxes in the presentation of profit/loss. At EUR 0.7 million, it was EUR 4.3 million below the prior-year amount. After consideration of the share in profit of third-party limited partners, earnings before taxes come to EUR 0.3 million in financial year 2011 after EUR 4.9 million in the year Consolidated Management Report 13

18 Income taxes relate to trade tax payable by the single-ship limited partnerships. Due to restructuring concerning an indirect partner of these limited partnerships, extraordinary operating income to be added to the companies taxable income increased. Tax expenses also include considerable additional charges for the year 2010 so that the future annual increase turns out much lower against the year Net of income taxes, the consolidated net result for the period comes to EUR -0.2 million in the year 2011, after a positive net result of EUR 4.8 million in the previous year. Net income attributable to non-controlling interests relate to non-controlling shareholders of Verwaltung MS HAMMONIA PESCARA GmbH, included in the basis of consolidation for the first time in On the whole, the Group s profit/loss and the consolidated net result generated in financial year 2011 are still affected significantly by the shipping crisis, as was already the case in the previous year Financial position Financial management aims at providing the optimum capital structure for the Group and as efficient an appropriation of available cash as possible. In the area of conflict between the so-called leverage effect on the one hand and the lending limits of the ship-financing banks on the other hand, an optimum capital structure has taken shape that provides for an approximate relation of 30 % equity and 70 % borrowed capital at the time of investment (time of the ship s delivery). Funds are appropriated at the level of the individual single-ship limited partnerships. The Group s financial position can be illustrated with the help of the cash flow statement. This statement differentiates between cash flows from operating activities, investing activities, and financing activities. in EUR Change Cash flow from operating activities 22,948 29,382-6,434 Cash flow from investing activities 116 1,375-1,259 Cash flow from financing activities -20,399-20, Net change in cash and cash equivalents 2,665 10,026-7,361 Maturity changes in cash and cash equivalents -3, ,091 Changes in basis of consolidation Effects of exchange rate changes on cash and cash equivalents 1, ,717 Cash and cash equivalents at beginning of period 26,116 15,967 10,149 Cash and cash equivalents at end of period 27,585 26,116 1,469 The EUR/USD exchange rate as of the reporting date was (previous year: ). An average EUR/USD exchange rate of was applied for the reporting period (previous year: ). The cash flow from operating activities is determined according to the indirect method. The change in the operating cash flow by EUR -6.4 million compared with the previous year results from changes in the working capital (the working capital comprises current assets less current liabilities) and a reduced liquidity effective net income for the period. 14 HCI Hammonia Shipping AG Annual Report 2011

19 The cash flow from investing activities results from reimbursements of the suppliers of the new constructions delivered in the years 2008 and The investing cash flow of the year 2010 resulted from the net purchase price (purchase price less non-cash transaction components) for the interest in MS HAMMONIA PESCARA as well as the interest in the general partner plus (from Group perspective) acquired liquid assets. The cash flow from financing activities of EUR 20.4 million results in the amount of EUR 19.9 million (previous year: EUR 20.7 million) from the repayment of loans. Other payments relate to transaction costs of loans (EUR 0.4 million) and dividends paid to non-controlling shareholders (EUR 0.1 million). Due to the low level of charter rates, agreements were made with the financing banks on the deferment of payments on loans with respect to the 3,100 TEU and 2,500 TEU container ships in the year The agreed deferments encompass up to eight payments for one 3,100 TEU container ship and four payments for the six 2,500 TEU container ships. With regard to another 3,100 TEU container ship, an agreement on the deferment of payments is still pending. However, payments were deferred for this container ship in consultation with the credit institution involved, too. Operating costs and interests of the container ships involved were covered by the pool revenues. By way of security for the deferment agreements, HCI HAMMONIA SHIPPING AG committed itself to the ship-financing banks to show term deposit balances in the amount of USD 4,000k (EUR 3,091k) at the level of the holding company. The amount was presented in the statement of cash flows as Maturity changes in cash and cash equivalents. Further cash holdings of the Group holding company in the amount of EUR 916k result from acquisition cost contributions for the acquisition of a controlling interest in a single-ship limited partnership. They are subject to an agreement on the utilization of funds and to conditional repayment in case the holding is not acquired. In the financial year, cash and cash equivalents were increased by EUR 55k on account of the first-time consolidation of Verwaltung MS HAMMONIA PESCARA GmbH as of 1 January Compared with 31 December 2010, cash and cash equivalents altogether went up EUR 1.5 million to EUR 27.6 million as of 31 December The reconciliation of cash and cash equivalents with the item Cash and cash equivalents in the statement of financial position is as follows: in EUR 000 Cash and cash equivalents according to statement of cash flows 27,585 Funds subject to agreement on utilization 916 Liquidity reserve due to deferments 3,091 Cash and cash equivalents according to statement of financial position 31,592 Consolidated Management Report 15

20 As a material non-cash investing and financing transaction, the cash flow key figures include the issue of a profit participation right in the amount of EUR 5.8 million through contribution in kind of a loan receivable and the granting of a claim to a cash portion in the amount of EUR 0.4 million. The Group had unused overdraft facilities at its disposal in the amount of EUR 0.7 million as of 31 December Assets and liabilities The Group s assets and liabilities are as follows: in EUR /12/2011 in % 31/12/2010 in % Change Assets Non-current assets 504, % 507, % -3,050 Current assets 37,507 7 % 31,088 6 % 6,419 Total assets 541, % 538, % 3,370 Equity 165, % 163, % 2,395 Liabilities Non-current liabilities 295, % 319, % -24,184 Current liabilities 80, % 55, % 25,158 Total equity and liabilities 541, % 538, % 3,369 The EUR/USD exchange rate as of the reporting date was (previous year: ). Virtually unchanged, 93 % of the total assets are accounted for by non-current assets as of 31 December In addition to twelve container vessels in service, in the amount of EUR 5.4 million these relate to a loan receivable from FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG due to equity bridge financing provided by a credit institution. The Group acquired that loan receivable by way of a contribution in kind within the framework of the issue of a profit participation right. In February 2012 the loan receivable was converted into limited liability capital (debt-to-equity swap). The changes in non-current assets are summarized in the following table: in EUR December ,333 Depreciation and amortization -22,921 Contribution in kind loan receivable 5,367 Disposals -119 Currency effects 14,637 Other changes December ,283 Current assets include cash and cash equivalents in the amount of EUR 31.6 million (31 December 2010: EUR 26.1 million). Equity increased due to exchange rate changes in the context of the translation of the statements of shipping companies reported in their functional currency USD. The Group s equity ratio of 31 % remained virtually unchanged from the previous year. Changes in equity expressed in absolute terms are presented in the following table: 16 HCI Hammonia Shipping AG Annual Report 2011

21 in EUR December ,534 Consolidated net result for the period -226 Changes in fair value of derivatives in cash flow hedges -3,612 Changes in exchange rate difference 6,213 Changes in non-controlling interests December ,929 Non-current liabilities essentially comprise the non-current portion of ship financing relating to the twelve seagoing vessels in service in the amount of EUR million (previous year: EUR million). The decrease in the non-current portion of ship financing is due to running repayment and exchange rate related reductions as well as reclassifications to the current portion of ship financing. These reclassifications were made for formal reasons pursuant to IFRS regulation as the extension of a waiver agreement with respect to the non-observance of certain loan terms and conditions (loan-to-value clause) for the 7,800 TEU vessels is currently still pending. Reclassifications were made in the amount of the partial loan amounts not covered by ship measurements (not considering charter agreements). Non-current liabilities also include liabilities from derivative financial instruments in the amount of EUR 14.2 million, two profit participation rights defined as borrowed capital in the total amount of EUR 13.0 million, and shares in capital held by third parties in the amount of EUR 3.9 million. At the end of 2011 a profit participation right was issued in the amount of EUR 5.8 million. The issue was made essentially by way of a contribution in kind. For formal reasons pursuant to IFRS, the shares in capital held by third parties must be reported as borrowed capital while they represent equity from an economic perspective. Current liabilities essentially result from the current portion of ship financing in the amount of EUR 70.9 million (previous year: EUR 46.0 million). For the increase in current ship financing compared to the previous year we refer to the statements on non-current ship financing. The Group s profit/loss, financial position and assets and liabilities can altogether be regarded as sound. 3.3 Non-financial performance indicators Technical availability of the fleet of HCI HAMMONIA SHIPPING AG in the reporting period Theoretical technical availability in days 4,380 Scheduled technical availability in days 4,320 Actual availability in days 4,356 Off-hire days for technical reasons 21 Technical availability of the fleet % The fleet of HCI HAMMONIA SHIPPING AG has distinguished itself by a very high level of technical availability. Adjusted for off-hire days due to technical reasons, the fleet s operational readiness is above 99 %. This result reflects the impeccable technical condition of the ships and the crews high level of training and is accounted for by the performance level provided by the technical operation of the vessels. 3.4 Subsequent events Even though negotiations in connection with the acquisition of a controlling interest in the shipping company of the MS ANTOFAGASTA were already concluded at the end of the year 2011, joining the company was delayed by a few weeks due to a technical incident: On 12 December 2011, water got into the lubricating oil of the main engine of the MS ANTOFAGASTA, causing damages at the bearings in various segments of the main engine. Against the backdrop of this event, HCI HAMMONIA SHIPPING AG joining the shipping company as partner was made subject to fulfillment of the Consolidated Management Report 17

22 conditions that the cause of damage is positively identified, damages are fully repairable, the existing charter agreement with A.P. Moeller-Maersk remains in force, and the materialized damage is covered by insurance. All conditions were fulfilled so that HCI HAMMONIA SHIPPING AG holds a controlling interest of 51 % in the shipping company of the MS ANTOFAGASTA effective 10 February Other reportable events of potential material effects on financial statements have not occurred between the end of the year 2011 and the date of preparation of this report. 3.5 Risks and opportunities Risk report The Management Board of HCI HAMMONIA SHIPPING AG considers systematic and efficient risk management a task to be continuously developed. The Group has a well-structured, DP-based risk management system. The integral components of this system are systematic risk identification and risk assessment as well as measures for the prevention, minimization, and control of risks. Special emphasis is placed on the early detection of risks that could jeopardize the company s continued existence. Material risks result from the operation of ships, financing activities, exchange rate changes, and the legal form as well as the stock exchange listing. The management of the risks linked to ship operation and financing is the responsibility of HAMMONIA Reederei GmbH & Co. KG, the company that operates all ships of HCI HAMMONIA SHIPPING AG. Risk monitoring as well as legal support with respect to corporate and capital market law is provided by the Management Board and by HCI Concept GmbH & Co. KG. The following main risk Groups are classified in the context of the risk management system: Market risks The Group generates income from the operation of ships, essentially resulting in the following individual risks: Revenues from chartering out the ships do not cover the ship operating costs or the debt service or they do not provide for an adequate rate of return on the invested capital The Group s 2,500 TEU and 3,100 TEU container ships are included in size-specific revenue pools, minimizing the risk of discontinued operation or operation at inadequate charter rates and providing a balance between market peaks and market lows. However, new signings of individual ships included in the revenue pools at below-average rates can reduce the pool result. The same applies in case that pooled ships are temporarily out of charter. Serving as pool manager is Peter Döhle Schiffahrts-KG, one of Germany s best-known and most reputable privately owned ship operating companies and brokers. The container vessel HAMMONIA PESCARA has been chartered out to the shipping company United Arab Shipping Company S.A.G. until July 2014 under binding charter agreement. The three 7,800 TEU container vessels HAMMONIA FIONIA, HAMMONIA DANIA, and HAMMONIA HAFNIA as well as the container ship ANTOFAGASTA have been chartered by the world s largest shipping company, A.P. Moeller-Maersk, under binding agreements until mid-february 2018, concerning the first three, and mid-march 2013, concerning MS ANTOFAGASTA. Thus a medium to long-term stabilization of the profit position is assured. The ships charterers become insolvent or do not pay the agreed charter rates according to contract The Group operates its 2,500 TEU and 3,100 TEU container ships in size-specific revenue pools, thus reducing the individual charterer s insolvency risk as well. However, it generally cannot be ruled out that charterers of individual ships pay the charter rates belatedly or not at all, or become insolvent. As members of a revenue pool, this scenario would indirectly affect the ships of HCI HAMMONIA SHIPPING AG, too. For risk minimization, charterers in financial trouble are actively supported in their restructuring efforts by the pool manager and the ship owners. 18 HCI Hammonia Shipping AG Annual Report 2011

23 The ships are badly damaged, sink, or cause third-party damages during operation For the typical risks carried by the operation of seagoing vessels, serious damage, sinking, or third-party damages, adequate insurance coverage is provided by the operator. Exchange rate risk All revenues from the ships operation are generated exclusively in USD while parts of the vessel operating costs and future dividends to be paid incur in EUR. For this reason, HCI HAMMONIA SHIPPING AG employs active interest and currency management in order to reduce the risks of changes in exchange rates and interest rates. The ships financing is currency congruent for the most part; remaining exchange rate risks are hedged to the extent that corresponding payment transactions have already been established. The shipping companies of MS ANTOFAGASTA and MS HAMMONIA PESCARA are financed in part by JPY loans. Apart from the divergence from the dividend currency and the currency of receipt, a currency risk also results from the divergence between the operating cash flow and the ship s value indicated in U.S. dollar and financing in Japanese yen. This leads to liquidity risks from the current repayments and interest payments and financing risks regarding so-called currency clauses. As the loans concerned are only partly denominated in Japanese yen and the ships involved are under binding charters, the risk of a liquidity squeeze due to a rising Japanese yen can be regarded as low. The currency clauses are suspended at present or adjusted to the effect that there is no immediate risk. Risk of interest rate changes For the ships financing borrowed capital is used, too. The risk of interest rate changes is partly limited by the conclusion of derivative interest rate hedges. The risk of interest rate changes remains for the portion of external financing that is not hedged by long-term fixed interest rates or the conclusion of derivative interest rate hedges. Risk of changes in financing Financing conditions are generally defined for the entire terms of contract. In cases of violations of certain contractual obligations, the financing bank has the option to renegotiate the financing conditions or the right to insist on immediate payment. For the purpose of risk minimization, active negotiations with the financing partners are entered into regularly and in good time. Company-related risks Apart from the above-mentioned risks specific to the operation of ships, the Group is exposed to company-related risks as well. Deciding factors for the Group s success are the quality of management and of key service providers as well as the company s standing with investors, business partners, and market analysts. In this context, the Group has secured the Management Board members commitment by their long-term appointment. Key operational and administrative functions are supplied by qualified and experienced service providers on the basis of long-term service agreements. In addition, innovative financing concepts are prepared, timely and comprehensive shareholder information is provided, and changed conditions are quickly responded to. There are no risks from ordering speculative new constructions. Furthermore, the fleet s financing is secured by longterm loans extended by banking institutions established in the field of ship financing. Exposure to risks that could jeopardize the company s continued existence such as over-indebtedness or insolvency or to other risks with an extraordinary or substantial effect on the Group s profit/loss, financial position and assets and liabilities does not apply. Consolidated Management Report 19

24 3.5.2 Internal control system (ICS) The internal control system of the Group of HCI HAMMONIA SHIPPING AG determines the measures necessary for the timely, complete, and correct transmission of documents, data and information required for the preparation of the separate financial statements of the Group companies, the IFRS consolidated financial statements, and the consolidated management report. By means of the internal control system applied, risks of an incorrect presentation in internal as well as external accounting shall be prevented as far as possible. However, it must be pointed out that this system cannot provide absolute certainty of a presentation free from mistakes; insofar a residual risk remains. Bookkeeping represents the basis of internal and external financial accounting. The ongoing business transactions and contracts concluded by the Group s subsidiaries as the basis for the preparation of the consolidated financial statements according to IFRS are recorded and entered in the mandatory IFRS currency USD. Bookkeeping is provided by HAMMONIA Reederei GmbH & Co. KG within the framework of the operation contracts concluded between the Group s respective subsidiaries and HAMMONIA Reederei GmbH & Co. KG. The resulting trial balances of the individual subsidiaries are then processed with an interface for data import in a separate Group accounting program. In this process, the accounting policies, valuation methods and Group accounting policies applicable for the Group of HCI HAMMONIA SHIPPING AG are applied correspondingly and uniform requirements for the presentation and recording of Group-internal business transactions are considered. The Group s accounting and the preparation of the consolidated statement of financial position according to IFRS are provided by an externally commissioned certified accountant on the basis of the IFRS regulations applicable to the parent company and the accounting policies, valuation methods and Group guidance of the AG. As essential control instruments for the correct and complete recording of the Group companies business transactions, the following mechanisms have been implemented: Uniformly defined and observed flow of documents and invoices between the separate divisions in charge Classification and grading of the assignment of areas of responsibility throughout the Group s subsidiaries Uniform controlling for all of the Group s subsidiaries The four-eye principle Preparation of consolidated statement of financial position by an external certified accountant Opportunities for future development Despite the fact that freight rates are currently going down and the present correction phase regarding charter rates, the relation of growth in supply and demand with respect to the ship sizes of importance to HCI HAMMONIA SHIPPING AG, up to 4,500 TEU, is favorable from the ship owners viewpoint. Opportunities arise for HCI HAMMONIA SHIPPING AG from the medium and long-term increase in demand for shipping tonnage and corresponding higher charter revenues. The company has up-to-date vessels that meet the customers high requirements especially in regard to prevailing safety standards. Due to the anticipated long remaining useful life of the fleet, crises can be compensated during good market phases. Furthermore, the authorized capital created at last year s Annual General Meeting provides the opportunity to acquire additional shipping tonnage at favorable conditions. Thus the Group s shipping tonnage as a whole could be reduced in price and the future profit potential could be raised. The feasibility of such concepts was proven with the successful acquisition of two container ships in the years 2010 and Similar to the cases of the MS ANTOFAGASTA and 20 HCI Hammonia Shipping AG Annual Report 2011

25 the MS HAMMONIA PESCARA, banks and issuing houses still see the necessity of selling ships or transferring them to alternative financing concepts due to non-performing loans. As raising capital on the German KG market is possible only to a limited extent and banks are not interested in fully entering the ships in their statements of financial position for reasons of business policy and regulations, HCI HAMMONIA SHIPPING AG can benefit from the currently strained financing situation with its approved measures, i.e. the issue of new shares or the issue of profit participation rights against contribution in cash and/or in kind. Another opportunity comes with a rising U.S. dollar against the euro. As the majority of cash flows and assets are denominated in U.S. dollar, a stronger U.S. dollar has a positive effect on profit/loss, financial position and assets and liabilities. A decrease of the historically regarded strong Japanese yen also carries opportunities. 3.6 Outlook The following predictions contain assumptions made on the basis of all information available at this point in time. If the underlying assumptions do not materialize or if additional risks occur, the actual results may differ from the expected results. We therefore cannot guarantee the correctness of these statements. The following predictions relate to the 24 months following the year under review. In the latest edition of its World Economic Outlook Update released in January 2012, the International Monetary Fund (IMF) slightly lowered its forecasts for global economic growth in the years 2012 and 2013 once again. The current IMF forecast for global economic growth of the year 2012 is 3.3 %. The worldwide economic growth is still positive, yet it will probably turn out 0.7 percentage points lower than still expected in September Once again, the increase in the annual economic performance will turn out stronger in the emerging markets, with 5.4 %, than in the industrialized nations for which an average growth of 1.2 % is predicted. For the year 2013 the IMF expects a modest increase of the growth rate to 3.9 %. Against this backdrop, a continued positive development of the global trade volume, important to the container shipping business, can also be expected, yet at lower growth rates than predicted in the September 2011 forecast. The IMF predicts an increase in the global trade volume by merely 3.8 % for the year For the year 2013 a stronger growth of 5.4 % is anticipated again. However, these expectations for the economic performance are subject to the condition that there will be no new escalation of the public debt crisis with negative effects on the development of the real economy. For the years 2012 and 2013, Clarkson expects an increase in container turnover between 6.5 % and 7.7 % in 2012 and between 7.5 % and 8.3 % in 2013, according to the Container Intelligence Monthly Report of January The largest gains are anticipated for the North-South routes. Expectations for fleet growth range from 6.0 % to 9.2 % for the year 2012 and from 8.0 % to 11.0 % for the year 2013 (Clarkson, Alphaliner Monthly Monitor, January 2012, Maersk Broker Container Charter Market, November/December 2011, and Howe Robinson Shipbrokers Annual Containership Review 2011). The greater bandwidth of the forecasts for fleet growth results from the fact that the individual analyst firms consider different factors such as postponements of delivery dates, shipwrecking, and slow steaming for their forecasts. The large container ship segments are going to record the greatest increase in capacity. According to Alphaliner, 79 % of the current order book relates to units in excess of 5,000 TEU. Depending on the above-mentioned adjusting factors, a balance of demand and supply can still be assumed by and large for the year As the fast growth in supply principally relates to the large container vessels from 5,000 TEU upward, market opportunities arise in the medium term especially for small to mid-sized container ships used in feeder traffic. Thus prospects for the 2,500 and 3,100 TEU pool-operated ships of HCI HAMMONIA SHIPPING AG remain sound for the medium term. The medium sized units, some of which are equipped with cranes, are very well suited for the fast growing feeder traffic and the regional cargo routes of South Asia and Africa. Against this backdrop, we anticipate a disproportionate increase in demand met by short supply. This market situation can be expected to allow for charter rate increases in the medium term again, also resulting in significantly improved profitability of the Company on the whole with a certain pool related delay. The relatively young 2,500 TEU and 3,100 TEU ships that have comparatively low fuel consumption and a sufficient number of terminals for refrigerated containers can be expected to benefit from an improvement of the char- Consolidated Management Report 21

26 ter market first. However, it is to be expected that the market will be strongly affected by the so-called cascade effect over the next few years, i.e. the displacement of smaller ships by larger ship size classes. Freight rates for containers are currently rising as the liner shipping companies seem to have put an end to the cutthroat price war for container market shares. At the beginning of the year, all leading liner shipping companies announced they would raise freight rates for containers significantly in early March. Freight rates for transport from China to Europe increased in March by USD /TEU to about USD 1,500/TEU. At the end of February, world market leader Maersk announced an increase in freight rates by another USD 400/TEU in April. A successful realization of the scheduled freight rate increases is a prerequisite to a recovery of charter rates. To the extent that the capital markets will simmer down, thus no longer impeding a further economic recovery, we anticipate a recovery of demand for container transport as well. At the same time, however, in view of the small order book for ships below 5,000 TEU and the limited options for financing new ship constructions particularly on the German market of limited partnerships, an expansion of capacity in the short and medium term is limited. Any significant increase in demand for transport would thus face limited supply. Accordingly a sustainable economic recovery should lead to a disproportionate recovery of charter rates. Judging from the recent positive development in the financial markets and the economic recovery in the United States, the time for such a recovery should be near. Still the economic performance in Europe and China is hard to assess. Despite the addition of the MS ANTOFAGASTA, total revenues will probably slightly decrease because of the lower average charter rates expected for 2012 in comparison with 2011 and the delay effect due to pool operation. In contrast to that, vessel operating costs will increase in 2012, primarily due to the addition of the MS ANTOFAGASTA. On balance we therefore expect a reduced vessel operating profit. Moreover, interest expenses will rise as well despite the repayments, also on account of the new addition of the subsidiary and the resulting increase in financial liabilities and an expected increase in interest rates. The same applies for depreciation on account of the newly added vessel. We are assuming a slightly higher USD exchange rate on annual average for 2012 compared to On this basis, we expect positive earnings before interest for the year 2012 on the whole, yet negative consolidated earnings after interest and taxes. Possible special items are not considered. For the year 2013, we anticipate an increase in revenues on account of a continued market recovery and the catch-up effect regarding the pool charter revenues at otherwise only modestly rising costs. Only with respect to interest expenses, we expect a decrease compared to the plan year 2012 based on the repayments. On the whole, we thus assume a slightly negative to balanced consolidated net income before special items for the year In respect of the development of the financial position, we see a decrease in disposable liquid assets for the year 2012 due to the repayments to be made for all subsidiaries in the full amount again, coinciding with insufficient charter revenues from the revenue pools. Despite the decrease in liquid assets, we expect a level of liquidity for 2012 that is still sufficient to cover the debt service of the vessels; proof of the agreed liquidity reserves on demand, however, is dependent on the dynamics of the market recovery. Depending on the further market development we anticipate further necessary deferments of payment for the year Therefore negotiations will be entered into with the financing banks in order to safeguard the company s liquidity position sustainably. We expect that those negotiations can be brought to a constructive outcome once again. In addition to that, further financing measures such as a capital increase from the authorized capital or the issue of further profit participation rights are being examined thoroughly. Based on those measures, liquidity will be sufficient at any time to meet all payment obligations of the Group companies. We currently see no liquidity risks that could threaten the Group s continued existence. 3.7 Basics of the remuneration system According to the articles of incorporation, each member of the Supervisory Board receives a fixed annual compensation of EUR 5, The chairman of the Supervisory Board receives one and a half times of that amount. The Management Board members do not receive any remuneration. 22 HCI Hammonia Shipping AG Annual Report 2011

27 3.8 Profit/loss, financial position and assets and liabilities of the holding company HCI HAMMONIA SHIPPING AG Profit/loss Profit/loss of HCI HAMMONIA SHIPPING AG is as follows: in EUR Revenues Other operating income 704 5,487 Depreciation of property, plant and equipment and amortization of intangible assets 0-4 Other operating expenses -2,179-2,412 Income from investments 6,096 7,785 Other interest income and similar income Interest expense and similar expenses Net income 4,508 11,210 Profit/loss of HCI HAMMONIA SHIPPING AG is essentially determined by income from investments. The income from investments in the single-ship limited partnerships is as follows: Investments in single-ship limited partnerships Income from investments 2011 in EUR 000 Income from investments 2010 in EUR 000 HAMMONIA BAVARIA 0 63 HAMMONIA PESCARA HAMMONIA FIONIA 1,584 2,488 HAMMONIA DANIA 1,588 2,370 HAMMONIA HAFNIA 2,430 2,864 Total 6,096 7,785 Other operating income in the amount of EUR 703k essentially relates to a project fee due to the issue of a profit participation right (EUR 400k) as well as foreign exchange gains from the measurement of foreign currency holdings (EUR 355k). The comparatively high prior-year amount of EUR 5,487k resulted from write-ups on financial investments (ship investments) in the amount of EUR 5,184k. In the reporting period, other operating expenses incurred in the total amount of EUR 2,179k. These essentially resulted from service costs (EUR 1,525k) as well as audit fees, tax consultancy and legal fees (EUR 371k). Interest expense in the amount of EUR 323k results from interest and handling fees in connection with the issue of profit participation rights. Altogether a net income of EUR 4,508k was recorded for the year under review. In consideration of the profit brought forward from the previous year in the amount of EUR 11,307k, the resulting retained profits come to EUR 15,815k. Consolidated Management Report 23

28 3.8.2 Financial position The financial position of HCI HAMMONIA SHIPPING AG can be visualized with the help of a cash flow statement. The statement of cash flows distinguishes between cash flows from operating activities, investing activities, and financing activities. in EUR Change Cash flow from operating activities 395 1,793-1,398 Cash flow from investing activities 3,107-2,113 5,220 Net change in cash and cash equivalents 3, ,822 Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of period 992 1, Cash and cash equivalents at end of period 4, ,793 The cash flow from operating activities is determined according to the indirect method. For the reporting period HCI HAMMONIA SHIPPING AG reports a cash flow from operating activities in the amount of EUR 395k. With a cash flow from investing activities of EUR +3,107k, currency-related changes in cash and cash equivalents of EUR +291k and in considering cash and cash equivalents of EUR 992k at the beginning of the period, cash and cash equivalents come to EUR 4,785k as of the reporting date. The positive cash flow from investing activities results from the repayment of disposable capital reserves of individual single-ship limited partnerships as well as from the cash distribution of one singleship limited partnership. The cash flow key figures contain as a material non-cash investment and financing transaction the issue of a profit participation right in the amount of EUR 5,800k by way of a contribution in kind in the form of a loan receivable and the granting of an entitlement to a cash portion. To the amount of EUR 915k, liquid assets result from contributions to the acquisition costs of the purchase of a controlling interest in a single-ship limited partnership. These contributions are subject to an agreement on the utilization of funds and to conditional repayment in case the holding is not acquired. Another amount of USD 4,000k (EUR 3,091k) is available to HCI HAMMONIA SHIPPING AG only for restricted use as it serves as collateral for deferments agreed for seven single-ship limited partnerships Assets and liabilities Assets and liabilities of HCI HAMMONIA SHIPPING AG are as follows: 31/12/ /12/2010 Change in EUR 000 in % in EUR 000 in % in EUR 000 Assets Fixed assets 169, % 152, % 16,951 Receivables and other assets 6,514 4 % 14,659 8 % -8,145 Liquid assets 4,785 3 % % 3,793 Prepaid expenses 24 0 % 1,079 1 % -1, , % 169, % 11,544 Equity and liabilities Equity 165, % 161, % 4,508 Provisions % % -4 Liabilities 14,738 8 % 7,698 5 % 7, , % 169, % 11, HCI Hammonia Shipping AG Annual Report 2011

29 The company s fixed assets are made up solely of financial investments, relating in the amount of EUR 164,051k to the investments in single-ship companies in the legal form of GmbH & Co. KG and their general partners. An additional amount of EUR 5,367k results from the contribution of the equity bridge loan for FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG made by the credit institution which finances the single-ship company within the framework of the issue of a profit participation right. Apart from that, financial assets increased in comparison with the previous year due to the contribution of shares in profits to the equity (free capital reserve) of individual subsidiaries. Receivables and other assets went down accordingly due to the contribution of the shares in profits. Other assets essentially relate to entitlements in the total amount of EUR 833k in connection with the issue of a profit participation right. The decrease in prepaid expenses results from the consumption of the advance payment of administrative expenses under a service agreement. Liquid assets of HCI HAMMONIA SHIPPING AG went up from the previous year, primarily due to inflow from the subsidiaries. Other cash inflow results from the payment of contributions to the acquisition costs of the purchase of a controlling interest in FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG. These contributions are subject to an agreement on the utilization of funds and to conditional repayment in case the holding is not acquired. The statement of financial position of HCI HAMMONIA SHIPPING AG reports equity of EUR 165,870k as of the reporting date, made up of the subscribed capital of EUR 13,641k, the capital reserve of EUR 136,409k, the statutory reserve of EUR 5k, and net retained profits of EUR 15,815k. The increase compared to the previous year results from the net income of EUR 4,508k. The liabilities of HCI HAMMONIA SHIPPING AG increased by altogether EUR 7,040k compared to the pervious year, essentially due to the issue of another profit participation right in the amount of EUR 5,800k. The issue of the profit participation right was essentially made in kind by way of the contribution of a loan receivable from a single-ship company. The increase in other liabilities by EUR 796k results from the collection of contributions to acquisition costs subject to conditional repayment in the context of the signing of a framework agreement in connection with the acquisition of a controlling interest in FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG. Profit/loss, financial position and assets and liabilities of HCI HAMMONIA SHIPPING AG appear altogether in good order. 3.9 Reporting in accordance with Sections 289 (4), 315 (4) HGB The share capital comes to EUR 13,641, and is divided into 136,414 no-par bearer shares with a theoretical amount of the share capital of EUR 100 per share. Each share represents one vote. All shares issued represent the same rights. The sale or transfer of shares is not restricted. There are no restrictions with regard to voting rights. Direct or indirect shareholdings that exceed 10 % of the voting rights as of 31 December 2011 are owned by HSH Nordbank AG, Martensdamm 6, Kiel (18.69 %). HAMMONIA Reederei GmbH & Co. KG, Elbchaussee 370, Hamburg, holds an interest of 9.97 %. Peter Döhle Schiffahrts-KG, Elbchaussee 370, Hamburg, with indirect holdings of 3.36 % through a subsidiary, holds an interest of 32 % in HAMMONIA Reederei, and therefore the interest held by HAMMONIA Reederei is attributed to Peter Döhle Schiffahrts-KG. Peter Döhle Schiffahrts KG thus exceeds the threshold of 10 % of the voting rights with %. There are no privileged shares granting voting right control. Employees who do not exercise voting right control directly do not hold interests in the share capital. According to Section 84 AktG (German Stock Corporation Act) the Supervisory Board is responsible for appointing and dismissing members of the Management Board. The articles of incorporation of HCI HAMMONIA SHIPPING AG do not provide diverging regulations. Consolidated Management Report 25

30 In accordance with Section 179 AktG, amendments to the articles of incorporation generally require a three-quarter majority of the capital represented at passing the resolution. Law permits that the articles of incorporation provide for a different majority of the represented capital in case of proposed changes to the nature and purpose of the business, it must be a larger majority. In this regard, the general provision of Section 11 (2) of the articles of incorporation reads as follows: The resolutions of the General Meeting are passed, insofar as there are no conflicting compulsory statutory provisions, with the simple majority of the votes cast or, if the law provides for a majority of the capital in addition to the majority of votes, with the simple majority of the share capital represented at passing the resolution. For certain subject matters, the law provides for larger majorities of the capital and/or additional conditions in compulsory regulations. Amendments to the articles of incorporation that only concern their wording may be resolved on by the Supervisory Board in accordance with Section 14 of the articles of incorporation. The Management Board was authorized by resolution of the Annual General Meeting of 11 June 2010 to increase the company s share capital, subject to the Supervisory Board s consent, by up to EUR 6,820, until 10 June 2015 by the one-time or repeated offer of no-par bearer shares against contribution in cash or in kind (authorized capital). The Management Board will decide on the time for carrying out a capital increase together with the Supervisory Board. There is no other authorized capital. There is no conditional capital. Moreover, by resolution of the Annual General Meeting of 11 June 2010 the Management Board was authorized to issue profit participation rights against contribution in cash or in kind in the total amount of up to EUR 75 million. The Management Board will decide on the further particulars of the issue and the terms of the profit participation rights together with the Supervisory Board. This authorization has already been made use of by resolution of 9/17 December 2010 in the amount of EUR 7,450,000 and by resolution of 8/29 December 2011 in the amount of EUR 5,800,000. The company has not entered into any material agreements, subject to mandatory reporting according to Section 289 (4) no. 8 HGB (German Commercial Code), on the condition of a change of control as a result of a takeover bid. The company has not entered into any compensation agreements with members of the Management Board or employees in case of a takeover bid Statement on corporate governance Working methods of Management Board and Supervisory Board Management Board The structure of governance and supervision implemented at HCI HAMMONIA SHIPPING AG provides for a dual board system in accordance with German corporate law. The two members of the Management Board direct the company on their own authority with the objective of a sustainable increase in shareholder value. Usually the Management Board convenes every four weeks in regular Management Board meetings and its members continuously maintain close contact outside those sessions as well. The Management Board as a whole makes all decisions on issues for which a resolution passed by the entire Management Board is required by law, the articles of incorporation, or the Management Board s rules of procedure. Business transactions that require the Supervisory Board s consent beyond the legal requirements are defined within the scope of the Management Board s rules of procedure. The Management Board informs the chairman of the Supervisory Board regularly about the company s business situation. In the event of other relevant incidents of potential material impact on the business situation, the Management Board shall report to the chairman of the Supervisory Board without delay. 26 HCI Hammonia Shipping AG Annual Report 2011

31 Supervisory Board The Supervisory Board of HCI HAMMONIA SHIPPING AG assumes monitoring and advisory functions. It consists of three members. The Supervisory Board is responsible, among other matters, for the approval and thus the adoption of the consolidated financial statements and the separate financial statements of HCI HAMMONIA SHIPPING AG and for this purpose it maintains close contact with the auditor. The members of the Supervisory Board are not engaged in any business or personal relationships with the Company of the sort that would imply a conflict of interests and thus limited independence. Cooperation of Management Board and Supervisory Board Management Board and Supervisory Board work closely together for the company s benefit. The Management Board coordinates the company s strategic orientation with the Supervisory Board and discusses the status quo of the strategy s realization with the Supervisory Board at regular intervals. The regular contact of Management Board and Supervisory Board is an integral component of an efficient cooperation in the company s interest. In the four scheduled Supervisory Board meetings, the Management Board reports on the intended business policy and other substantial concerns for the company, in particular profit/loss, financial position and assets and liabilities, risk position, risk management, and risk controlling. In addition, the Management Board reports at least once a year on essential issues of corporate planning. Any arising conflict of interests is reported to the Supervisory Board by the Management Board members without delay. In the past financial year, no conflict of interests of the individual members of the Management Board occurred. The chairman of the Supervisory Board maintains regular contact with the Management Board, and together the strategy, the business performance, and the risk management of HCI HAMMONIA SHIPPING AG are discussed and monitored. The chairman of the Supervisory Board is informed by the Management Board without delay about relevant incidents that are of material importance to the assessment of business situation and business performance as well as the governance of the company. If necessary, the chairman of the Supervisory Board promptly informs the Supervisory Board and convenes an extraordinary Supervisory Board meeting if so indicated Statements on corporate governance practices HCI HAMMONIA SHIPPING AG has not determined any particular guidelines for specific corporate governance practices beyond the statutory requirements Corporate governance report The German Corporate Governance Code (GCGC) provides rules and guidance for the corporate governance and supervision of listed companies in Germany. The GCGC promotes transparency and efficiency in corporate governance and is intended to strengthen the confidence of domestic and international investors and other stakeholders in the management and supervision of listed companies. Management Board and Supervisory Board of HCI HAMMONIA SHIPPING AG commit themselves to the general objectives of the Code. However, the specific organization of business activities leads to a number of divergences from the Code s recommendations. Management Board and Supervisory Board of HCI HAMMONIA SHIPPING AG aim at generating an attractive and sustainable return on the investment of our company s shareholders and at increasing the shareholder value in the long term. HCI HAMMONIA SHIPPING AG is a management holding company for ship investments. The stock exchange listing of HCI HAMMONIA SHIPPING AG pursues the objective of providing easy and flexible access to the attractive asset category of ship investments especially to institutional investors. Consolidated Management Report 27

32 Management Board and Supervisory Board Management Board and Supervisory Board of HCI HAMMONIA SHIPPING AG are committed to responsible conduct for the benefit of the shareholders and other stakeholders of the company. The Management Board has two members who manage the company on their own authority. Management Board member Dr Karsten Liebing is managing director of HAMMONIA Reederei GmbH & Co. KG, contractual ship operator and managing limited partner of the ships acquired for the AG through single-ship limited partnerships. Management Board member Jan Krutemeier is managing director of HCI Concept GmbH & Co. KG, whose purpose of business is among others the conception of investments in the realm of closed-end ship funds. HCI Concept GmbH & Co. KG renders comprehensive controlling and administrative services to HCI HAMMONIA SHIPPING AG. This allows the close connection of services and the respective know-how of these companies with HCI HAMMONIA SHIPPING AG. Potentially conflicting interests of Management Board members are disclosed in detail in the company s stock exchange prospectus. The notes of annual report 2011 contain information about transactions with related individuals and companies. In our opinion, the firmly established cooperation of HCI HAMMONIA SHIPPING AG, HCI Concept GmbH & Co. KG and HAMMONIA Reederei GmbH & Co. KG is a key factor for the successful realization of the corporate strategy and for the achievement of the Company s goals. The three-member Supervisory Board of HCI HAMMONIA SHIPPING AG currently consists of Werner Berg, Michael Hummel, and Andreas Uibeleisen, all independent of the HCI Group and of HAMMONIA Reederei. One member has collected international experience over many years. The Supervisory Board supervises and advises the Management Board. Because of its small number of members, the Supervisory Board has not established any committees and deals with all relevant topics in full session. Chairman of the Supervisory Board is Werner Berg. The Supervisory Board has adopted the following objectives for its future composition in view of No of the German Corporate Governance Code: The composition of the Supervisory Board of HCI HAMMONIA SHIPPING AG shall provide that the Management Board is controlled and advised by the Supervisory Board in a qualified manner. The candidates proposed for election to the Supervisory Board shall be capable of fulfilling the tasks of a Supervisory Board member based on their knowledge, skills, and expert experience. Emphasis shall be placed on the personality, integrity, willingness to perform, professionalism, and independence of the candidates proposed for election. The objective is to combine all the know-how and experience on the Supervisory Board deemed essential in view of the company s activities. The center of the business of HCI HAMMONIA SHIPPING AG is in Germany due to the location of the registered office, the investors, and the contractual partners. Therefore international experience is not a deciding criterion for the composition of the Supervisory Board. The Supervisory Board shall have a sufficient number of independent members. Material and not merely temporary conflicts of interest, for instance due to board memberships or consulting assignments with relevant competitors of the company shall be avoided. As has been presented already in the declaration of compliance of 9 December 2010, a general age limit for the company s Supervisory Board members was and is not provided for. The Supervisory Board considers such a limit not adequate as the Supervisory Board primarily relies on knowledge, skills, and expert experience as the deciding factors for the company. Because the Supervisory Board consists of only three members, diversity can be taken into consideration only to a limited extent. With regard to future election proposals, the Supervisory Board shall also pay attention to an adequate participation of women. Even during the screening of potential candidates for a new election or by-election for Supervisory Board positions about to be vacant, qualified women shall be included in the selection process and adequately considered in the election proposals. At present there are no women on the Supervisory Board. Future decisions on board membership shall continue to focus primarily on the candidates qualifications rather than their sex. 28 HCI Hammonia Shipping AG Annual Report 2011

33 As no elections to the Supervisory Board were held in the 2011 financial year, the issue whether the above-mentioned targets for the election to the Supervisory Board were met did not arise. With respect to the question whether the above-mentioned targets were met regarding the impending election in financial year 2012, it can be stated that women were included in the selection process but no woman was chosen for a specific election proposal. Share ownership The members of Management Board and Supervisory Board do not have material holdings of the company s shares. Communication HCI HAMMONIA SHIPPING AG gives reports on business operations in press releases and ad hoc announcements. Detailed information is provided in the form of annual reports and half-year financial reports. The company informs about developments by quarter with its interim financial statements. The company s Web site provides all relevant information and statements about the share, the Annual General Meeting, and the financial calendar. Our investor relations team is always happy to answer your questions; please refer to the provided contact data Declaration of compliance pursuant to Section 161 AktG Management Board and Supervisory Board of HCI HAMMONIA SHIPPING AG (the Company ) declare that the Company has complied with the recommendations of the Government Commission German Corporate Governance Code in its version of 26 May 2010 (the Code ) as announced by the Federal Ministry of Justice in the official section of the electronic Federal Gazette on 2 July 2010 since the issue of the last declaration of compliance, and will do so in the future, with the following exceptions: No. 3.8 (3) includes the recommendation that a deductible defined in more detail shall be agreed for Supervisory Board members if the company contracts D&O liability insurance for the Supervisory Board. The D&O liability insurance concluded for members of the company s Supervisory Board does not provide for a deductible. The Company holds the view that the agreement of a deductible for Supervisory Board members is not a suitable instrument for improving the sense of responsibility among the members of the Company s Supervisory Board in observing their duties and responsibilities and in exercising their functions. Therefore there are also no plans for the future introduction of a deductible with respect to Supervisory Board members. According to No , the Management Board shall pay attention to diversity in the recruitment for executive positions in the company and aim for an adequate consideration of women. As the Company does not have employees of its own, the Code s recommendation does not apply. According to No , the Management Board shall have a chairman or speaker. The allocation of specific areas of responsibility to the Company s individual Management Board members is not provided for. As the Management Board consists of only two members who the company intends to share equal rights, the appointment of a chairman or speaker is not desired. Nos and of the Code carry the recommendation that the Supervisory Board shall determine the total remuneration of the individual Management Board members and decide and regularly review the Management Board s remuneration system in full session. Furthermore, the Code offers recommendations for the arrangement of the remuneration in case of a premature termination of the Management Board members employment contracts and in the event of a change of control. As the members of the Management Board have not entered into contracts of employment with the Company and do not receive remuneration for their services, decisions on the remuneration s amount and structure and on remuneration Consolidated Management Report 29

34 instruments applied are still not indicated. Even in the case of premature termination of employment or in the event of a change of control, the company s Management Board members would not receive remuneration. Therefore the Code s recommendations for the specific arrangement of Management Board remuneration are not applicable. According to Nos and 4.2.5, the total remuneration of each Management Board member shall be disclosed in a remuneration report. As the members of the Company s Management Board do not receive remuneration for their service to the company, disclosure is not required. According to No , conflicts of interest of the Management Board shall be disclosed to the Supervisory Board without delay. Due to the contractual framework of the Company with regard to contracting parties, some conflicts of interests do arise; these have already been disclosed in detail in the stock exchange prospectus in their entirety. In No (1) sentence 2, the Code recommends to consider diversity in the composition of the Management Board and to strive for an adequate consideration of women. Moreover, according to No (1) sentence 3 of the Code, a long-term succession plan for Management Board members is recommended. The Company holds the view that the aspect of diversity, including the consideration of women, is not a deciding criterion for the composition of the Management Board. In the Company s interest, management skills and experience as well as expert knowledge are more important. As the Management Board has only two members, diversity can also be observed only to a limited extent. The Company has no general plans for long-term succession planning. Due to the respective ages of the current Management Board members, Management Board and Supervisory Board do not consider it necessary at present to determine a long-term succession plan. There can be no long-term planning for the succession of Management Board members who step down on short notice. According to No (2) sentence 3 of the Code, an age limit shall be determined for members of the Management Board. The Company neither provides for nor intends to introduce a general age limit for Management Board members. The Company does not find such a limit adequate as the Company s management primarily depends on the Management Board members knowledge, skills, and professional experience as deciding factors for the Company. According to Nos through of the Code, the Supervisory Board shall establish committees made up of professionally qualified members, dependent on Company specifics and the number of Supervisory Board members. In view of the fact that the Company s Supervisory Board has only three members in accordance with the articles of incorporation, the establishment of committees is not intended. According to No of the Code, the Supervisory Board shall define specific objectives for its composition, making allowance for diversity and an age limit to be determined for Supervisory Board members as well as an adequate consideration of women, among other issues. These objectives shall be reflected by the Supervisory Board s proposals to the respective electoral bodies. The objectives of the Supervisory Board and the status quo of their implementation have been published in the corporate governance report (cf. page 25 of annual report 2010). According to No (2) sentence 1 of the Code, the members of the Supervisory Board shall receive performanceoriented remuneration in addition to a fixed remuneration. 30 HCI Hammonia Shipping AG Annual Report 2011

35 The Company s articles of incorporation do not provide for performance-oriented remuneration for Supervisory Board members, and an introduction of such a provision is not intended. The Company holds the view that performanceoriented remuneration is not a suitable instrument for supporting the Supervisory Board s control function. Furthermore, Section 7 (1) sentence 4 of the company s articles of incorporation stipulates that by resolution of the Annual General Meeting the Supervisory Board may be granted a higher remuneration than determined in the articles of incorporation so that adequate flexibility is provided for. According to No. 6.3 sentence 2 of the Code, all new facts that have been communicated to financial analysts and comparable addressees shall be made available to all shareholders without delay. The Company reserves the right to diverge from this recommendation in the individual case. Sensitive corporate data that are not subject to ad hoc disclosure may be important for the work of financial analysts. However, it must be decided in the individual case if such data should be made available to the public and thus to competitors as well. It goes without saying that the Company observes the regulations of the German Securities Trading Act on insider trading. According to No sentence 2 of the Code, the consolidated financial statements shall be released within 90 days and the interim financial statements shall be released within 45 days after the respective end of the reporting date. The Company holds the view that the statutory regulations for the release of financial statements are sufficient. A narrower time schedule for the preparation and audit of the financial statements would possibly affect their quality. Management Board and Supervisory Board of HCI HAMMONIA SHIPPING AG Dresden, 8 December 2011 On behalf of the Management Board: Jan Krutemeier On behalf of the Supervisory Board: Werner Berg Remuneration report Each member of the Supervisory Board receives a fixed annual compensation of EUR 5, in accordance with the articles of incorporation. The chairman of the Supervisory Board receives one and a half times of that amount. Furthermore, expenses linked to the duties and responsibilities of Supervisory Board membership are reimbursed. The Management Board members receive no remuneration. Information on remuneration can also be found in the management report on page 22. Hamburg, 17 April 2012 Dr Karsten Liebing Management Board Jan Krutemeier management Board Consolidated Management Report 31

36 4. Consolidated Financial Statements Consolidated income statement in EUR 000 Ziffer Revenues 27 67,804 62,647 Vessel operating costs 28-26,108-21,718 Vessel operating result 41,696 40,929 Other operating income 29 2,727 5,745 Other operating expenses 30-3,864-3,207 Result from shipping operations 40,559 43,467 Depreciation and amortization of property, plant and equipment and intangle assets 31-22,921-22,400 Impairment loss Earnings before interest and taxes (EBIT) 17,174 21,067 Interest income Interest expenses 34-16,613-16,331 Financial expenses from share in profit of third-party limited partners Earnings before taxes (EBT) 295 4,924 Income taxes Consolidated net result for the period ,834 thereof attributable to shareholders of HAMMONIA SHIPPING AG ,834 thereof attributable to non-controlling interests Earnings per share (basic) (EUR) Earnings per share (diluted) (EUR) Statement of comprehensive income in EUR 000 Ziffer Consolidated net result for the period ,834 Foreign exchange losses/(gains) from currency translation of subsidiaries, financial statements 6,213 10,955 Gains/(losses) from hedging instruments applied for cash flow hedges 44(a)ii changes recognized in profit or loss 6,112 6,851 changes recognized outside profit or loss -9,724-10,227-3,612-3,376 Other comprehensive income for the period 2,601 7,579 Consolidated comprehensive income 2,375 12,413 thereof attributable to shareholders of HAMMONIA SHIPPING AG 2,172 12,413 thereof attributable to non-controlling interests HCI Hammonia Shipping AG Annual Report 2011

37 Consolidated statement of financial position Assets EUR 000 Note 31/12/ /12/2010 Intangible assets Property, plant and equipment 6 498, ,318 Financial investments Other miscellaneous assets 8 5,367 0 Non-current assets 504, ,333 Inventories 9 1,760 1,534 Trade receivables 10 1, Receivables from related parties Income tax receivables Other financial assets 13 2, Other miscellaneous assets ,078 Receivables from financial derivatives Cash and cash equivalents 15 31,592 26,116 Current assets 37,507 31,088 Total assets 541, ,421 Equity and liabilities EUR 000 Note 31/12/ /12/2010 Subscribed capital 16 (a) 13,641 13,641 Capital reserve 16 (b) 132, ,544 Retained earnings 16 (c) 12,883 13,312 Accumulated other equity 16 (d) 6,638 4,037 Equity attributable to shareholders of HCI HAMMONIA SHIPPING AG 165, ,534 Equity attributable to non-controlling interests 16 (e) Equity , ,534 Financial liabilities , ,973 Profit participation capital 18 13,002 7,339 Liabilities from financial derivatives 19 14,203 9,571 Non-controlling interests in equity 20 3,902 4,363 Non-current liabilities 295, ,246 Financial liabilities 21 70,927 46,018 Trade payables 22 1,887 1,553 Liabilities to related parties Income tax liabilities Other liabilities 25 1,670 1,126 Liabilities from financial derivatives 26 5,219 6,127 Current liabilities 80,799 55,641 Total equity and liabilities 541, ,421 Consolidated Financial Statements 33

38 Consolidated statement of cash flows EUR 000 Note Consolidated net result for the period ,834 Depreciation amortization of intangible assets and property, plant and equipment 22,921 22,400 Tax expense Elimination of net interest income 33,34 16,878 16,143 Other non-cash income and expenses 1, Decrease/increase in working capital -2,964 1,554 Increase/decrease in inventories Increase/decrease in trade receivables -1, Increase in receivables from related parties Increase/decrease in other assets Increase in trade payables Decrease/increase in liabilities to related parties Decrease/increase in other liabilities -1, Taxes refunded/paid Interest paid -15,767-16,111 Interest received Cash flow from operating activities 39 22,948 29,382 Payments for investments in intangible assets and property, plant and equipment ,375 Net cash inflow from the acquisition of subsidiaries Cash flow from investing activities 116 1,375 Transactions costs for loans Repayments of loans -19,890-20,731 Dividends paid to non-controlling interests Cash flow from financing activities -20,399-20,731 Net change in cash and cash equivalents 2,665 10,026 Cash and cash equivalents at beginning of period 26,116 15,967 Changes in the terms of cash and cash equivalents -3,091 0 Changes in the group of consolidated companies 55 0 Effects of exchange rate changes on cash and cash equivalents 1, Cash and cash equivalents at end of period 15,38 27,585 26, HCI Hammonia Shipping AG Annual Report 2011

39 Consolidated statement of changes in equity EUR 000 Paid-in equity Subscribed equity Capital reserve Retained earnings Changes in fair value of derivatives in cash flow hedges Accumulated other equity Foreign currency translation Accumulated adjustment other equity Equity attributable to shareholders of HCI HAM- MONIA SHIP- PING AG Noncontrolling interests Note 16 (a) 16 (b) 16 (c) 16 (d) 16 (e) Total consolidated equity Balance at 01/01/ ,414 9,771 8,479-7,458 3,916-3, , ,122 Capital decrease -122, , Consolidated comprehensive income Consolidated net result for the period 0 0 4, , ,834 Foreign currency translation differences ,955 10,955 10, ,955 Other changes , ,376-3, ,376 Balance at 31/12/ , ,544 13,313-10,834 14,871 4, , ,535 Balance at 01/01/ , ,544 13,313-10,834 14,871 4, , ,535 Changes in non-controlling interests from consolidation Dividends paid to non-controlling interests Consolidated comprehensive income Consolidated net result for the period Foreign currency translation differences ,213 6,213 6, ,213 Other changes , ,612-3, ,612 Balance at 31/12/ , ,544 12,884-14,446 21,084 6, , ,930 0 Consolidated Financial Statements 35

40 Consolidated statement of changes in non-current assets Development of intangible assets EUR /01/2010 Exchange differences Additions Historical cost Additions from business combinations Reclassifications Disposals 31/12/2010 Acquired intangible assets Goodwill 4, ,879 Total 4, ,894 EUR /01/2011 Exchange differences Additions Historical cost Additions from business combinations Reclassifications Disposals 31/12/2011 Acquired intangible assets Goodwill 4, ,879 Total 4, ,879 Consolidated statement of changes in non-current assets Development of property, plant and equipment EUR /01/2010 Exchange differences Additions Historical cost Additions from business combinations Reclassifications Disposals 31/12/2010 Seagoing vessels 489,323 37, , ,307 Total 489,323 37, , ,307 EUR /01/2011 Exchange differences Additions Historical cost Additions from business combinations Reclassifications Disposals 31/12/2011 Seagoing vessels 569,307 18, ,484 Total 569,307 18, ,484 The development of intangible assets and of property, plant and equipment is part of the notes to the consolidated financial statements. 36 HCI Hammonia Shipping AG Annual Report 2011

41 Consolidated statement of changes in non-current assets Development of intangible assets Accumulated amortization/impairment Carrying amount 01/01/2010 Exchange differences Amortization Impairment losses Disposals 31/12/ /12/ /12/ , , , , Accumulated amortization/impairment Carrying amount 01/01/2011 Exchange differences Amortization Impairment losses Disposals 31/12/ /12/ /12/ , , , , Consolidated statement of changes in non-current assets Development of property, plant and equipment Accumulated amortization/impairment Carrying amount 01/01/2010 Exchange differences Amortization Impairment losses Additions 31/12/ /12/ /12/ ,630-2,571-22, ,607-61, , ,693-38,630-2,571-22, ,607-61, , ,693 Accumulated amortization/impairment Carrying amount 01/01/2011 Exchange differences Amortization Impairment losses Additions 31/12/ /12/ /12/ ,990-3,658-22, , , ,317-61,990-3,658-22, , , ,317 Consolidated Financial Statements 37

42 Notes to consolidated financial statements General information HCI HAMMONIA SHIPPING AG is a stock corporation listed on the Hamburg Stock Exchange (Hanseatische Wertpapierbörse Hamburg) and has its registered office in Hamburg, Germany. The Company address is: Burchardstraße 8, Hamburg. The Company is entered in the register of companies kept at the District Court (Amtsgericht) Hamburg under no. HRB HCI HAMMONIA SHIPPING AG and its subsidiaries are active in the international shipping industry. HCI HAMMONIA SHIP- PING AG intends to position itself as an international supplier in the container ship charter business. This objective is pursued through the purchase and operation of seagoing vessels, the sale of seagoing vessels, and the conclusion of charter agreements through the subsidiaries organized in the legal form of limited partnerships with a limited liability company as general partner (GmbH & Co. KG). As of the reporting date, twelve (previous year: twelve) subsidiaries were in the business of ship operation. The vessels operated by the subsidiaries are put into commission all over the world. The Group s financial year is the calendar year. The Group did not have own employees in the years 2011 and (1) Basis of presentation The consolidated financial statements of HCI HAMMONIA SHIPPING AG for the year ended 31 December 2011 have been prepared in accordance with the International Financial Reporting Standards (IFRS) passed and announced by the International Accounting Standards Board (IASB) as applicable in the European Union (EU), pursuant to the provisions of Regulation (EC) No. 1606/2002 of the European Parliament and the Council of 19 July 2002 on the application of international accounting standards in conjunction with Section 315 a (1) HGB (German Commercial Code). All IFRS adopted by the European Union and subject to mandatory application in financial year 2011 have been applied. The IFRS requirements were fully complied with, and their application leads to the presentation of a true and fair view of the HCI HAMMONIA SHIPPING Group s assets and liabilities, financial position and profit/loss. The provisions of German commercial law as stipulated by Section 315a (3) HGB in conjunction with Section 315a (1) HGB were observed as well. Compliant with the optional two-statement approach provided by IAS 1, the company reports expenses and income recognized in profit or loss in the income statement while the reconciliation from income for the period to comprehensive income is reported in the statement of comprehensive income due to income and expenses recognized outside profit or loss. The income statement is structured according to total cost accounting. The consolidated financial statements are generally prepared on the basis of amortized or depreciated acquisition or production cost for the recognition of assets and liabilities. This does not apply for intangible assets from the acquisition of subsidiaries, available-for-sale financial assets, and derivative financial instruments. These items were recognized at respective fair values as of the reporting date. The consolidated financial statements are based on the going concern assumption. The consolidated financial statements were prepared in keur (EUR 000). The figures presented in the notes to the consolidated financial statements are also stated in keur. Insignificant divergences or apparent errors in addition are in fact rounding differences. Consolidated financial statements and consolidated management report are published in the electronic Federal Gazette (elektronischer Bundesanzeiger). 38 HCI Hammonia Shipping AG Annual Report 2011

43 (2) Consolidation (a) Principles of consolidation In addition to HCI HAMMONIA SHIPPING AG, all subsidiaries were included in the consolidated financial statements. The subsidiaries are entities whose financial and business policies HCI HAMMONIA SHIPPING AG is able to control either directly or indirectly. HCI HAMMONIA SHIPPING AG generally acquires its subsidiaries as mere shelf companies. The provisions of IFRS 3 on business combinations do not apply for such acquisitions. In particular, goodwill does not need to be recognized and amortized. In some cases, however, subsidiaries are acquired that have already displayed economic activities to a certain extent. These subsidiaries are consolidated as of the date of acquisition under the purchase method. According to the purchase method, the acquisition cost of the investment acquired is offset against the proportionate fair value of the acquired assets and assumed liabilities of the subsidiary at the time of acquisition. Any resulting positive difference is capitalized as derivative goodwill. Negative differences resulting from capital consolidation at the time of acquisition are recognized immediately in profit or loss after another review of the carrying amounts. The date of acquisition is the point in time when control over the net assets and financial and operating activities of the acquired company is transferred to the Group. Any hidden reserves or hidden liabilities identified upon fair-value measurement of assets and liabilities within the scope of initial consolidation are amortized or depreciated, written off, or released in the following periods according to the development of assets and liabilities. Derivative goodwill is tested for impairment in the following periods at least once every year and, in case of impairment, written down to the lower recoverable amount. Subsidiaries are included in the consolidated financial statements by way of full consolidation from the point in time when control has been transferred to HCI HAMMONIA SHIPPING AG. Expenses and income as well as receivables and payables between consolidated companies are eliminated. Inter-company profits and losses are eliminated insofar as they are material. The financial statements of HCI HAMMONIA SHIPPING AG and the consolidated subsidiaries are prepared according to the same accounting policies and valuation methods. The separate financial statements of the consolidated subsidiaries have been prepared as of the reporting date of HCI HAMMONIA SHIPPING AG. Investments in subsidiaries held by other shareholders are non-controlling interests held by the limited partners of the single-ship limited partnerships. They are reported under liabilities as non-controlling interests in equity in the amount of the proportionate limited liability capital. (b) Basis of consolidation Compared to the previous year, the basis of consolidation was expanded by Verwaltung MS HAMMONIA PESCARA GmbH. As of 31 December 2011, the basis of consolidation includes the following fully consolidated companies. The share in the subsidiaries equity is presented in brackets and corresponds with the voting rights: Parent company HCI HAMMONIA SHIPPING AG, Hamburg Consolidated Financial Statements 39

44 Subsidiaries general partners Verwaltung HCI HAMMONIA Schiffahrts GmbH, Hamburg, (100%) Verwaltung MS HAMMONIA PESCARA GmbH, Hamburg (57%) Subsidiaries shipping companies MS HAMMONIA TEUTONICA Schiffahrts GmbH & Co. KG, Hamburg, (97.62%) MS HAMMONIA ROMA Schiffahrts GmbH & Co. KG, Hamburg, (97.64%) MS HAMMONIA MASSILIA Schiffahrts GmbH & Co. KG, Hamburg, (97.64%) MS HAMMONIA HOLSATIA Schiffahrts GmbH & Co. KG, Hamburg, (97.61%) MS HAMMONIA POMERENIA Schiffahrts GmbH & Co. KG, Hamburg, (97.60%) MS HAMMONIA BAVARIA Schiffahrts GmbH & Co. KG, Hamburg, (97.72%) MS WESTPHALIA Schiffahrts GmbH & Co. KG, Hamburg, (97.39%) MS SAXONIA Schiffahrts GmbH & Co. KG, Hamburg, (97.39 %) MS HAMMONIA FIONIA Schiffahrts GmbH & Co. KG, Hamburg, (98.56%) MS HAMMONIA HAFNIA Schiffahrts GmbH & Co. KG, Hamburg, (98.56%) MS HAMMONIA DANIA Schiffahrts GmbH & Co. KG, Hamburg, (98.56%) MS HAMMONIA PESCARA Shipping GmbH & Co. KG, Hamburg, (55.71%) (c) Translation of financial statements prepared in foreign currencies Pursuant to legal provisions (Sections 315a (1), 298 (1) in conjunction with Section 244 HGB (German Commercial Code)), the consolidated financial statements are prepared in euro (presentation currency). The functional currency of the single-ship limited partnerships for the purpose of IAS 21 is the U.S. dollar (USD). The functional currency (USD) results from the fact that transactions related to the acquisition of ships and their financing, the charter market, and the market for material vessel operating costs are all settled in USD. Therefore all transactions of the shipping subsidiaries settled in the local currency euro or in other currencies are translated into USD at the exchange rate as of transaction date in accordance with IAS 21. Monetary assets and liabilities are adjusted to the USD exchange rate as of the reporting date. Assets and liabilities of subsidiaries whose functional currency is not the euro are translated at the exchange rate as of the reporting date. Items of the income statement are translated at the respective year s annual average exchange rate. Equity components of subsidiaries are translated at the respective historical exchange rate of the time they incur. Exchange rate differences resulting from currency translation are recognized in equity under foreign currency translation adjustments. Exchange rates for the translation of financial statements prepared in foreign currencies developed in relation to the euro as follows: Foreign currency for EUR 1 Average exchange rate Closing rate as of reporting date /12/ /12/2010 USD (3) Accounting policies and valuation methods (a) Recognition of income and expenses Revenues are recognized at the time performances are made if the amount of revenues can be reliably determined and the economic benefit will probably accrue. 40 HCI Hammonia Shipping AG Annual Report 2011

45 Operating expenses are recognized as of the date of performance or expensed as incurred. Interest is recognized as expenses or income, respectively, in the period in which the interest incurs. Interest expenses incurred in connection with the acquisition and production of qualified assets are capitalized in the Group. In financial years 2010 and 2011 no such capitalization became necessary. Earnings attributable to non-controlling interests in equity are calculated on the basis of earnings determined in accordance with the accounting principles under German commercial law. (b) Intangible assets Acquired intangible assets are capitalized at acquisition cost. Acquired intangible assets with determinable useful lives are amortized on a straight-line basis over the expected economic useful lives of three years from the time they are ready for use. Intangible assets with indefinite useful lives do not apply for the Group with the exception of derivative goodwill. The carrying amounts of derivative goodwill are tested for impairment at least once every year. The goodwill arisen in the context of business combinations was written off entirely in the year it arose. Therefore no derivative goodwill is recognized for the HCI HAMMONIA SHIPPING Group as of 31 December No intangible assets have been generated in the Group. (c) Property, plant and equipment Assets of property, plant and equipment are capitalized at acquisition or production cost and depreciated over their expected economic useful lives on a straight-line basis. Useful lives applied correspond with the expected useful lives in the Group. The Group s property, plant and equipment exclusively concern seagoing vessels (container ships). Useful lives of new ships are 25 years. The remaining useful lives of seagoing vessels bought second-hand are estimated on the basis of the respective ship s technical condition at the time of acquisition. Material components of property, plant and equipment (seagoing vessels and major regular maintenance activities) are depreciated separately (component approach). Gains or losses from the disposal of intangible assets and property, plant and equipment are reported in other operating income or other operating expenses. (d) Impairment losses of intangible assets and property, plant and equipment The HCI HAMMONIA SHIPPING Group reviews fixed assets for impairment and recognizes impairment loss if necessary. For the purpose of conducting impairment reviews, derivative goodwill is allocated to the reporting units to which goodwill is also allocated for the Group s internal reporting purposes. These reporting units usually correspond with the individual Group companies. The reporting units cash flows are discounted at a rate for the cost of capital oriented toward the rate applied by peer companies. Impairment loss is recognized if the present value of the cash flows is smaller than the carrying amount of the intangible assets and property, plant and equipment as well as the net working capital of the reporting unit including allocated derivative goodwill. Impairment loss is recognized for other intangible assets and property, plant and equipment if, as a result of certain events or developments, the assets carrying amount is no longer covered by the expected proceeds from disposal or the discounted net cash flow from continued use. The cash flows are also discounted at a rate for the cost of capital oriented towards peer companies. If the determination of a recoverable amount is not possible for individual assets, cash flows of the Group of assets on the next higher level are used for which such cash flows can be determined. Consolidated Financial Statements 41

46 Impairment loss is reversed insofar as the reasons for the recognition of impairment loss cease to apply in the following periods. The amount of the reversal is limited to the amount that would have resulted had the impairment loss not been recognized. In the previous year, impairment loss was reversed in the amount of EUR 1,607k. Impairment loss recognized for goodwill is not subject to reversal. Impairment reviews are made at the end of each financial year. The discount rate applied in the year under report 2011 for the determination of the seagoing vessels value in use comes to between 6.36 % and 6.64 %, depending on the respective ship and its remaining useful life (previous year: between 6.87 % and 7.23 %). The determination of the net cash flow is made on the basis of operative planning for the respective seagoing vessels. For the periods subject to detailed planning, a growth of 2.5 % was assumed for cost as well as income (previous year: 2.5 %). (e) Financial instruments The HCI HAMMONIA SHIPPING Group generally recognizes financial assets upon delivery, i.e. as of settlement date. The financial instruments applied by the HCI HAMMONIA SHIPPING Group include cash and cash equivalents, receivables, available-for-sale financial assets, financial liabilities and loans as well as derivative financial instruments in the form of interest rate swaps and currency hedges. Financial assets are initially recognized at fair value plus directly attributable transaction cost unless the financial assets are allocated to the category at fair value through profit and loss. Financial assets of the category at fair value through profit and loss are initially recognized and subsequently measured at fair value. Other financial assets are subsequently measured at fair value or amortized acquisition cost in application of the effective interest method depending on the classification of the individual financial instruments in accordance with IAS 39. Financial liabilities are initially recognized at fair value less transaction cost and subsequently measured at amortized acquisition cost or, with regard to financial liabilities of the category at fair value through profit and loss, at fair value. The HCI HAMMONIA SHIPPING Group does not have primary financial liabilities to be allocated to this category as of the reporting date. Financial assets are derecognized if either the rights to receive the cash flows generated from these assets have expired or virtually all risks have been transferred to a third party in such a way that the criteria for derecognition are fulfilled. Financial liabilities are derecognized if the obligations have been extinguished, canceled, or expired. (i) Cash and cash equivalents Cash and cash equivalents include balances on current accounts and term deposits with maturities of only a few days. (ii) Receivables and other financial assets Receivables and other primary financial assets allocated to the category loans and receivables are initially recognized at fair value. Subsequent measurement is made at amortized acquisition cost in application of the effective interest method. Valuation allowances for receivables and other primary financial assets are made by using allowance accounts. Writedowns are recorded if there is objective evidence of a default risk for the respective financial asset. The amount of the valuation allowance is based on past experience or individual risk assessment. In financial year 2011, write-downs were carried out on the basis of these assumptions in the amount of EUR 464k (previous year: EUR 0k). (iii) Available-for-sale financial assets Available-for-sale financial assets include investments in subsidiaries that were not consolidated due to their immateriality. 42 HCI Hammonia Shipping AG Annual Report 2011

47 Investments in subsidiaries that were not consolidated due to their immateriality are classified as available-for-sale financial assets for valuation purposes according to IAS 39. Available-for-sale financial assets are recognized at fair value as of the reporting date or, if the fair value cannot be reliably determined, at acquisition cost. If fair values of investments in subsidiaries that were not consolidated due to their immateriality cannot be derived by means of adequate valuation methods, the investments are recognized at acquisition cost. Changes in fair value are recognized outside profit or loss in equity. If the fair value has decreased materially and sustainably, impairment loss is recognized in profit or loss. If the circumstances that led to impairment cease to apply in the following periods, the reversal of impairment loss is recognized in profit or loss with respect to financial assets regarded as borrowed capital, as is the impairment loss of the previous periods. The reversal of impairment loss is recognized outside profit or loss with respect to equity instruments. Impairment loss is recognized in profit or loss with respect to financial instruments measured at acquisition cost. Reversal of impairment loss does not apply for such financial instruments. (iv) Financial liabilities Financial liabilities are initially recognized at fair value. They are subsequently measured in general at amortized acquisition cost applying the effective interest method. (v) Derivative financial instruments Derivatives applied by the Group are interest rate swap contracts and currency hedges used for hedging interest rate and currency risks. Derivative financial instruments are recognized at fair value. The recognition of changes in fair value of derivative financial instruments depends on whether these instruments are used as hedging instruments and whether the requirements for hedge accounting according to IAS 39 are met. If these requirements are not met despite an existing economic hedging relationship, changes in fair value of derivative financial instruments are recognized in profit or loss. The effective portion of a change in fair value of a derivative financial instrument designated as a hedging instrument and fulfilling the requirements for hedge accounting for the purpose of hedging cash flows (cash flow hedge) is recognized outside profit or loss in equity as accumulated other comprehensive income, taking into account the corresponding tax effect. The ineffective portion is recognized in the income statement. The effective portion is recognized in profit or loss only if the hedged item is recognized in profit or loss as well. (vi) Fair value of financial instruments The fair value of financial instruments is determined on the basis of corresponding market prices or valuation methods. The fair value of cash and cash equivalents and other primary current financial instruments corresponds with the carrying amounts as of the respective reporting dates. The fair value of non-current receivables and other assets as well as non-current provisions and liabilities is determined on the basis of the expected cash flows in applying the reference interest rates as of the reporting date. The fair value of derivative financial instruments is determined on the basis of the reference interest rates as of the reporting date. (f) Inventories The item inventories concerns the seagoing vessels stock kept on board. The amount of inventories is determined on the basis of inventory stocktaking as of the reporting date. Acquisition cost is established according to the FIFO method. Inventories are measured at the lower of acquisition cost and net recoverable amount. If the reasons that led to an impairment of inventories cease to apply, impairment loss is reversed. Consolidated Financial Statements 43

48 (g) Provisions Provisions are made insofar as an obligation towards a third party exists as a result of a past event and that obligation will probably result in a future outflow of resources that can be reliably estimated. If the provision cannot be recognized because one of the above criteria is not met, the corresponding obligations are disclosed under contingent liabilities unless the probability that payment will be claimed is very low. Provisions for obligations are discounted if these obligations will probably not result in an outflow of resources as soon as the following year. The carrying amount of provisions is reviewed as of each reporting date. (h) Income taxes Current taxes are expensed as incurred at the amounts owed. Deferred taxes are created to account for future tax effects resulting from temporary differences between the tax base of assets and liabilities and their related carrying amounts in the IFRS financial statements as well as on loss carry-forward. The measurement of deferred taxes is based on the tax laws in effect at the end of the respective financial year and applicable to the financial years during which the differences are balanced or loss carry-forward is probably utilized. Deferred tax assets on temporary differences or loss carry-forward are recognized only if their realizability appears sufficiently certain. Deferred taxes are recognized with respect to temporary differences arising from the fair value measurement of assets and liabilities in the context of company acquisitions. Deferred taxes for temporary differences arising during subsequent measurement with regard to derivative goodwill are recognized only if the derivative goodwill is tax deductible. Loss carry-forward is not taken into account in the determination of deferred tax assets in the context of earnings contributions covered by taxation in accordance with Section 5a EStG (German Income Tax Act), governing the separate and uniform determination of the taxable income single-ship companies (tonnage tax). Due to tonnage taxation, differences arising between the tax base of assets and liabilities and their carrying amounts in the IFRS financial statements with regard to the single-ship limited partnerships have been considered permanent. The carrying amount of deferred tax assets is reviewed as of each reporting date and reduced to the extent it is no longer probable that sufficient taxable income will be available against which the deferred tax asset can be partially utilized. Deferred tax assets and deferred tax liabilities are offset against each other if the company has an enforceable claim to set off current tax assets against current tax liabilities and if deferred taxes refer to income taxes of the same taxable entity, claimed by the same tax authority. (i) Foreign currency transactions Acquisitions and sales in foreign currency are translated at the daily exchange rate as of the transaction date. Assets and liabilities in foreign currency are translated into the functional currency at the exchange rate as of the reporting date. The average USD exchange rate as of 31 December 2011 on which the consolidated financial statements of HCI HAMMONIA SHIPPING AG are based is USD/EUR (previous year: USD/EUR), that of the JPY is JPY/ USD (previous year: JPY/USD). Foreign exchange gains and losses resulting from these currency translations are recognized in profit or loss. (j) Use of estimates The estimates and assumptions underlying the preparation of the consolidated financial statements at hand affect the measurement of assets and liabilities, the disclosure of contingent assets and contingent liabilities as of the respective reporting dates, and the amounts of income and expenses in the reporting period. 44 HCI Hammonia Shipping AG Annual Report 2011

49 Estimates must be made particularly for determining the carrying amounts of deferred taxes. There are uncertainties with respect to the interpretation of complex tax issues. Therefore differences between the actual results and our assumptions or future changes in our estimates may result in changes in the tax results of future periods. Due to our assessment of the tax situation of the HCI HAMMONIA SHIPPING Group, no deferred taxes were considered for the consolidated financial statements; in particular, no benefits from tax loss carry-forward were capitalized. Further material estimates and assumptions primarily concern the determination of the useful lives of seagoing vessels, their residual values at the end of their useful lives, and the estimate of cash flows within the framework of conducting impairment reviews (carrying amounts of seagoing vessels including maintenance component as of the reporting date: EUR 498,915k; previous year: EUR 507,318k). The Group makes assessments and assumptions in respect of expected future developments in the context of preparing financial statements. As a matter of course, estimates derived from these assumptions and assessments will hardly ever match the actual circumstances to occur in the future. (4) New accounting regulations released by the IASB The basis of IFRS accounting of the HCI HAMMONIA SHIPPING Group are the accounting standards of the IASB as adopted by the European Commission for application in the European Union within the framework of the endorsement process in accordance with Regulation (EC) No. 1606/2002 in conjunction with Section 315a (1) HGB (German Commercial Code). IFRS or amendments to IFRS newly released by the IASB in financial year 2011 are subject to mandatory application by the HCI HAMMONIA SHIPPING Group only after a corresponding resolution has been passed by the European Commission within the framework of the endorsement process. The following Standards had to be applied in the consolidated financial statements of HCI HAMMONIA SHIPPING AG for the financial year ended 31 December 2011 for the first time: The amendment to IAS 32 Financial Instruments: Presentation addresses the classification of subscription rights, options, and stock warrants granted to the acquisition of a fixed number of own shares for a fixed amount in any currency. In November 2009, IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments was released, governing the accounting treatment of the redemption of liabilities through the issue of equity instruments within the scope of renegotiations of credit conditions. In November 2009 the IASB adopted an amendment to IAS 24 Investments in Associates. The amendment includes a simplification of the definition of related companies and individuals. Moreover, mandatory disclosures of transactions with government-related parties are considerably reduced for companies over which the government can exercise control, joint control, or significant influence. In November 2009 the IASB released amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement in respect of voluntarily prepaid amounts in the scope of minimum funding provisions. Within the framework of the IASB s second project for the improvement of International Financial Reporting Standards (annual improvements project) released in April 2009, various Standards were amended. Application of these Standards and Interpretations had no material effect on the assets and liabilities, financial position and profit/loss of the HCI HAMMONIA SHIPPING Group. Standards and Interpretations already adopted by the EU but not subject to mandatory application in financial year 2011 are the following: Consolidated Financial Statements 45

50 The amendments to IFRS 7 Financial Instruments: Disclosures were made for the improvement of disclosures on transfers of financial assets. The amendments are intended to enable users of financial reports to gain better insights into transactions for the purpose of the transfer of assets including an insight into potential effects of the risks remaining with the company disposed of. The amendments also require additional disclosures if a disproportionately large portion of transfers takes place close to the end of a reporting period. These regulations will be applied by the HCI HAMMONIA SHIPPING Group at the time of first mandatory application. The HCI HAMMONIA SHIPPING Group assumes at present that the application of these Standards and Interpretations will not have a material effect on the presentation of the assets and liabilities, financial position and profit/loss of the HCI HAM- MONIA SHIPPING Group. Standards and Interpretations released by IASB or IFRIC whose application for IFRS consolidated financial statements requires prior endorsement by the EU according to Section 315a HGB (German Commercial Code) are the following: IFRS 9 Financial Instruments IFRS 10 Consolidated financial statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IFRS 13 Fair Value Measurement IAS 27 Separate Financial Statements According to IFRS IAS 28 Investments in Associates and Joint Ventures Amendments to IAS 12 with respect to Deferred Tax: Recovery of Underlying Assets Amendments to IFRS 1 with respect to Removal of Fixed Dates for First-time Adopters Amendments to IAS 1 with respect to the Presentation of Items of Other Comprehensive Income Amendments to IAS 19 Employee Benefits Amendments to IFRS 7 Financial Instruments: Disclosures Amendments to IAS 32 Financial Instruments: Presentation Subject to their EU endorsement, these Standards and Interpretations will be applied at the time of first mandatory application. The HCI HAMMONIA SHIPPING Group assumes at present that the application of these Standards and Interpretations will not have a material effect on the presentation of the Group s assets and liabilities, financial position and profit/loss. Notes to the consolidated statement of financial position (5) Intangible assets Changes of the individual items of intangible assets of the HCI HAMMONIA SHIPPING Group are presented in the assets schedule. The amounts shown as of the reporting dates of reference years exclusively concern acquired intangible assets. 46 HCI Hammonia Shipping AG Annual Report 2011

51 (6) Property, plant and equipment The Group s property, plant and equipment consist of seagoing vessels (technical equipment and machinery). The seagoing vessels are chartered out to liner shipping companies under operating leases. in EUR /12/ /12/2010 Technical equipment and machinery Seagoing vessels 496, ,513 Large class charges 2,707 3, , ,318 Items of property, plant and equipment are recognized at depreciated acquisition cost and depreciated over their useful lives on a straight-line basis. Seagoing vessels are considered integral items; with regard to class charges for the large classes, generally due after 5 years, an adequate amount is split off and amortized as a special item over 5 years. For vessels not yet docked, class charges are estimated depending on size and amortized over the remaining period until docking, while capitalization is only made pro rata temporis if docking is intended to take place sooner than after 5 years according to schedule. For ships already docked, class charges actually incurred are amortized until the next docking. The determination of useful lives reflects the probable physical wear and tear, technical obsolescence, and legal as well as contractual restrictions. Thus determined useful lives of new ships are 25 years. The useful lives of seagoing vessels bought second-hand are estimated on the basis of the respective technical state of the seagoing vessel at the time of acquisition. Furthermore, the amount of depreciation is determined by the recoverable amounts at the end of an asset s economic useful life. The residual value of seagoing vessels equals their scrap value. The scrap value is subject to considerable market fluctuations. For the determination of residual values as of the reporting date, a scrap value of USD per ton (previous year: USD per ton) was assumed. Please refer to the assets schedule for information on developments in property, plant and equipment. Due to the effects of the financial crisis on the shipping industry, the seagoing vessels were reviewed for impairment by means of impairment tests carried out as of the end of the financial year. The impairment test determines the recoverable amount of the seagoing vessels. This amount is defined as the higher of fair value less sales costs and value in use. Because of the upheavals in the buying and selling markets for container ships noticeable since mid-2008, it can be assumed that the transactions taking place on the market are settled at prices that are significantly below the values in use. Therefore the Group management generally established the value in use as the recoverable amount. The value-deciding factors with respect to value in use are the future cash flows from the future use of the assets to be measured as well as the discount rates including the growth rate. As of the reporting date, the values in use of three seagoing vessels (previous year: three seagoing vessels) remained below the Group s respective carrying amounts. The impairment loss recognized for these three container ships in the previous years was therefore retained. The value in use is determined on the basis of a business valuation model, based in turn on the Company s internal perspective. The planning of operating cash flows provides the foundation. The planning was prepared in consideration of experiences and expectations with respect to the future market development. The pool managers expectations as well as publications of third-party charter brokers provide the basis for the time charter forecast. Vessel operating costs were estimated by the contractual ship operator based on experience. Consolidated Financial Statements 47

52 The cash flow is subject to fluctuations as it depends on a large number of factors, e.g. the development of the global economy, the demand for transport services, and the availability of other options for transport capacity and their costs. The predicted free cash flows are available for servicing the lenders of borrowed capital and for return on equity capital, and they are discounted at the weighted average cost of capital. Through the use of weighted average cost of capital as discount rate, the beta factor and the market risk premium are considered in addition to the current capital structure. The beta factor was determined on the basis of a peer Group analysis. For the market risk premium, it was referred to statements issued by the Institute of Public Auditors in Germany (IDW). As a result, the impairment tests were based on weighted average cost of capital between 6.36 % and 6.64 % (previous year: between 6.87 % and 7.23 %), depending on the expected remaining useful life of the respective seagoing vessel and in consideration of the individually expected free cash flows. (7) Financial investments Investments stated at EUR 1k as of the reporting date (previous year: EUR 15k) exclusively relate to unconsolidated interests in subsidiaries. The decrease compared to the previous year results from the first-time consolidation of a subsidiary in the financial year which was not included in the previous year s consolidated financial statements. Unconsolidated interests in a subsidiary are recognized as of the reporting date at fair value or, if the fair value cannot be reliably determined due to a non-existing active market nor through other valuation methods, at acquisition cost. The unconsolidated interest in subsidiaries was recognized as of the reporting date at acquisition cost. No impairment loss was recognized for the financial year. (8) Other assets (non-current) At the end of 2011 HCI HAMMONIA SHIPPING AG took over the equity bridge financing for a single-ship limited partnership in the amount of EUR 5,367k from a credit institution by way of a contribution in kind through the issue of a profit participation right. For more detailed information, please refer to notes (12), (44), and (45). (9) Inventories Inventories comprise raw materials and supplies identified on the basis of stocktaking as of the reporting date. The item is made up of the following components: in EUR /12/ /12/2010 Lubricating oil 1,524 1,329 Deck equipment Machine equipment ,760 1,534 No write-downs on inventories were necessary in the financial years presented above. (10) Trade receivables All receivables from customers are recognized at acquisition cost less specific valuation allowance. Existing receivables as of the reporting date essentially address two pools and several liner shipping companies with respect to ancillary services relating to time charter agreements. The gross receivables in the amount of EUR 3,014k (previous year: EUR 1,608k) were written down in the amount of EUR 1,592k (previous year: EUR 1,059k). Valuation allowances were necessary as in one pool the risk of bad debt loss was identified relating to receivables from one liner shipping company. Further valuation allowances relate to doubtful accounts with respect to receivables from liner shipping companies for ancillary services. For the development of specific valuation allowances, please refer to note (44) (b) (ii). Trade receivables generally bear no interest and have remaining terms to maturity of one year or less. 48 HCI Hammonia Shipping AG Annual Report 2011

53 (11) Receivables from related parties Receivables reported as of 31 December 2011 are from ATLANTIC Gesellschaft zur Vermittlung internationaler Investitionen mbh & Co. KG and result from credit for a placement guarantee. Receivables reported in the previous year resulted from current settlement transactions with HAMMONIA Reederei GmbH & Co. KG as the contractual ship operating company. Valuation allowances for identifiable default risks were not necessary. Receivables from related parties have remaining terms to maturity of one year or less. Further disclosures on related party transactions can be found under note (47). (12) Income tax receivables Receivables relate to tax refund claims from withholding tax on capital. Income tax receivables have remaining terms to maturity of one year or less. (13) Other assets (current) Other current assets can be broken down as follows: in EUR /12/ /12/2010 Receivables from insurance companies Receivables relating to profit participation right Others Other financial assets 2, Tax refund claims from input taxes Deferrals relating to service costs 0 1,055 Deferrals relating to insurance Others Miscellaneous assets 623 2,078 Other assets 2,651 2,731 With respect to deferrals relating to service costs, please refer to note (8) in conjunction with notes (45) and (46). Other current assets have remaining terms to maturity of one year or less. (14) Receivables from financial derivatives The receivables from financial derivatives reported in the previous year related to the positive current values of forward exchange transactions. For further explanations please refer to note (44). Consolidated Financial Statements 49

54 (15) Cash and cash equivalents Cash and cash equivalents comprise balances at credit institutions and can be broken down as follows: in EUR /12/ /12/2010 Balances in current accounts 8,699 6,298 Term deposits 22,893 19,817 31,592 26,115 Balances and term deposits are measured at face value. Term deposits have terms to maturity of only a few days. Current account balances yield interest at variable interest rates for daily callable balances. Term deposits yield interest according to the prevailing interest rates for short-term cash items. Cash and cash equivalents are subject to the following restrictions on disposal: Current account balances of HCI HAMMONIA SHIPPING AG result in the amount of EUR 916k from acquisition cost contributions for the acquisition of a controlling interest in a single-ship limited partnership. They are subject to an agreement on the use of funds and to conditional repayment if the acquisition of the interest does not occur. Additional term deposits of USD 4,000k (EUR 3,091k) concern HCI HAMMONIA SHIPPING AG and are at the Company s disposal only to a limited extent as they serve as collateral for deferments of payment agreed for seven single-ship limited partnerships. For more detailed information, please refer to notes (39) and (44) (a) (iv). (16) Equity Changes relating to equity components are presented in the statement of changes in equity (a) Subscribed capital Unchanged from the previous year, the subscribed capital consists of 136,414 no-par bearer shares with a theoretical share in the share capital of EUR each. The shares are fully entitled to voting rights and dividends. The Annual General Meeting of HCI HAMMONIA SHIPPING AG decided on 11 June 2010 to authorize the Management Board to increase the Company s share capital, subject to the Supervisory Board s consent, until 10 June 2015 by up to a total amount of EUR 6,820, through one or several issues of new no-par bearer shares against consideration in cash or in kind (authorized capital). The new shares shall generally be offered to the shareholders for subscription. According to Sections 203 (1) sentence 1, 186 (5) AktG (German Stock Corporation Act), the new shares may also be taken over by one or several credit institutions under the obligation to offer them to the shareholders for subscription (indirect subscription right). However, the Management Board is authorized, subject to the Supervisory Board s consent, to exclude the shareholders subscription rights 1. for fractional amounts resulting from a subscription ratio; 2. if the capital increase is made against contribution in cash, the issue price of the new shares does not fall materially below the stock exchange price of the already listed shares of the same type and under the same terms at the time of the definite determination of the issue price by the Management Board within the meaning of Sections 203 (1) and (2), 186 (3) sentence 4 AktG, and the total share in the share capital made up of shares to which the subscription right is excluded does not exceed 10 %, neither at the time of becoming effective nor at the time of exercising this authorization. In determining the 10 % threshold, the proportionate amount of the share capital which relates to 50 HCI Hammonia Shipping AG Annual Report 2011

55 shares issued or sold under the exclusion of subscription rights in direct or analogous application of Section 186 (3) sentence 4 AktG shall be deducted; 3. insofar as capital increases are carried out against contribution in kind for the purpose of the realization of business combinations or the acquisition of companies, company divisions, investments, or other assets, particularly of seagoing vessels or receivables. The Management Board is also authorized, subject to the Supervisory Board s consent, to determine the further particulars of the implementation of capital increases out of the authorized capital. b) Capital reserve The capital reserve is broken down as follows: in EUR /12/ /12/2010 Capital reserve according to Section 272 (2) no. 1 HGB 13,636 13,636 Capital reserve according to Section 272 (2) no. 4 HGB 122, ,772 Issue costs for raising equity -3,864-3,864 Total capital reserve 132, ,544 The capital reserve according to Section 272 (2) no. 1 HGB results from additional payments within the framework of a capital increase transacted in the year 2007 by the issue of 136,364 new no-par bearer shares and was recognized at EUR 13,636k. By resolution of the Annual General Meeting of 11 June 2010, the amount of EUR 122,772k resulting from the capital reduction was allocated to the capital reserve in accordance with Section 272 (2) no. 4 HGB. In accordance with IAS 32.37, the added equity capital was reduced by the issue costs for raising equity in the amount of EUR 3,864k. According to IAS 32.37, these costs must generally be reduced by related income tax benefits. As no tax payments are expected for the Company under prevailing tax law due to the business model of HCI HAMMONIA SHIP- PING AG, the costs for raising equity were deducted in their full amount from the added equity capital. (c) Retained earnings Retained earnings include the earnings of the previous periods and the period under review generated by the companies included in the consolidated financial statements insofar as these earnings have not been distributed as dividends. Retained earnings include surplus reserves set aside by the parent company. In accordance with Section 150 (2) AktG (German Stock Corporation Act), an amount of EUR 5k was allocated to the statutory reserve of HCI HAMMONIA SHIP- PING AG in the previous years. (d) Accumulated other comprehensive income Accumulated other comprehensive income states the changes in fair value of derivatives used in cash flow hedges as well as foreign currency translation adjustments. Changes in fair value of derivatives used in cash flow hedges relate to interest rate swaps used by the subsidiaries for hedging variable-interest loans, classified as cash flow hedges in accordance with IAS 39. In the financial year, income and expenses in the amount of EUR 6,112k (previous year: 6,851k) previously reported in accumulated other comprehensive income were transferred to the income statement. Expenses recognized outside profit or loss in this equity item amounted to EUR -9,724k this financial year (previous year: expenses of EUR -10,227k). Consolidated Financial Statements 51

56 The item foreign currency translation adjustments results from the translation of the separate financial statements of companies included in the consolidated financial statements from their functional currency (USD) into the presentation currency (EUR). In this financial year, income of EUR 6,213 (previous year: expenses of EUR 10,955k) from such currency translations were recognized outside profit or loss. (e) Non-controlling interests This item reported fort he first time in the consolidated financial statements results from the first-time consolidation of Verwaltung MS HAMMONIA PESCARA GmbH and relates to non-controlling interests of 43 % held in that company. Within the framework of first-time consolidation, interest in the equity of the subsidiary was attributed to the noncontrolling shareholders in the amount of EUR 107k. Based on agreements concluded in the context of the acquisition of controlling interests in MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG and MS HAMMONIA PESCARA GmbH, the amount of EUR 87k was distributed to the non-controlling shareholders in the financial year. Of the net income stated for MS HAMMONIA PESCARA GmbH in the financial year, the amount of EUR 204k was attributable to the non-controlling shareholders. (17) Financial liabilities (non-current) The disclosure concerns liabilities to banks and essentially comprises loans raised for financing the purchase of ships. The following material loans exist as of the reporting date: Face amount USD 000/ JPY 000 Scheduled repayment p.a. USD 000/ JPY 000 Availment as of 31/12/2011 Availment as of 31/12/2010 USD 000/ JPY 000 EUR 000 USD 000 EUR 000 Interest rate MS HAMMONIA BAVARIA 25,983 1,614 23,561 18,209 24,369 18,237 Term to maturity USD-LIBOR + Margin 3 January , ,555 5,839 7,924 5,930 CIRR 4 January 2021 USD-LIBOR + MS HAMMONIA ROMA 16, ,089 11,662 15,503 11,602 Margin 3 January ,248 1,383 14,173 10,954 14,865 11,125 CIRR 5 January 2021 MS HAMMONIA DANIA 60,750 6,231 40,499 31,300 46,730 34,972 USD-LIBOR + Margin 30 May , ,000 9,274 12,000 8,981 USD-LIBOR + Margin 31 May 2018 MS HAMMONIA FIONIA 60,750 6,231 40,499 31,300 46,730 34,972 USD-LIBOR + Margin 30 May , ,000 9,274 12,000 8,981 USD-LIBOR + Margin 31 May 2018 MS HAMMONIA HAFNIA 60,750 6,231 40,499 31,300 46,730 34,972 USD-LIBOR + Margin 30 May , ,000 9,274 12,000 8,981 USD-LIBOR + Margin 31 May 2018 MS SAXONIA 30,000 2,072 25,856 19,983 26,374 19,738 MS WESTPHALIA 30,000 2,308 25,961 20,064 26,538 19,861 MS HAMMONIA TEUTONICA 16, ,461 11,176 14,878 11,135 USD-LIBOR + Margin USD-LIBOR + Margin 31 December February 2021 USD-LIBOR + Margin 6 June ,975 1,360 12,916 9,982 13,596 10,175 CIRR 6 June 2020 MS HAMMONIA MASSILIA 16, ,955 11,558 15,165 11,349 USD-LIBOR + Margin 16,058 1,367 13,666 10,562 14,008 10,483 CIRR 20 October October HCI Hammonia Shipping AG Annual Report 2011

57 MS HAMMONIA HOLSATIA 16, ,404 11,132 14,612 10,936 USD-LIBOR + Margin 21 May ,912 1,354 12,865 9,943 13,204 9,881 CIRR 21 May 2020 MS HAMMONIA POMERENIA 24,690 1,534 20,471 15,821 20,855 15,607 USD-LIBOR + Margin 8, ,304 4,872 6,479 4,849 CIRR MS HAMMONIA PESCARA 39,200 2,920 33,360 27,107 36,280 0 JPY 732,690 0 JPY 732,690 7,312 JPY 732,690 6, November November 2019 USD-LIBOR + Margin 30 April 2023 JPY-LIBOR + Margin 30 July 2024 The ship mortgage loans are collateralized by promissory notes issued by the respective shipping companies. These are collateralized in turn by senior ship mortgages in favor of the financing credit institutions. Furthermore, the shipping companies have assigned all claims from the present and future operation of the vessels and from the insurance policies to the financing banks. The total carrying amount of the assets serving as collateral for liabilities comes to EUR 501,329k (previous year: EUR 508,418k). Of this total amount, EUR 498,915k (previous year: EUR 507,318k) relate to carrying amounts of the mortgaged seagoing vessels, EUR 1,422k (previous year: EUR 549k) relate to trade receivables, and EUR 992k (previous year: EUR 551k) relate to claims against insurance companies. The non-current financial liabilities remaining terms to maturity are as follows: in EUR /12/ /12/2010 Remaining terms between 1 and 5 years 125, ,924 Remaining terms of more than 5 years 138, ,049 Total 263, ,973 (18) Profit participation capital The Annual General Meeting of HCI HAMMONIA SHIPPING AG decided on 11 June 2010 to authorize the Management Board, subject to the Supervisory Board s consent, to issue profit participation rights without conversion or option rights to the Company s shares, registered and/or made out to the bearer, through one or several issues until 10 June 2015, with or without limited terms. The terms of the profit participation rights may extend up to 30 years. The profit participation rights may be denominated in euro or in another legal currency of an OECD member state. If the issue is in another currency, the respective equivalent value is authoritative, determined according to the ECB reference exchange rate on the day of resolving on the issue of profit participation rights. The total face value of the profit participation rights must not exceed EUR 75,000k or the respective equivalent value in another currency of an OECD member state. Profit participation rights are issued against contribution in cash or in kind. The profit participation rights shall generally be offered to the shareholders for subscription. According to Sections 221 (4) sentence 2, 186 (5) AktG (German Stock Corporation Act), the profit participation rights may also be taken over by one or several credit institutions under the obligation to offer them to the shareholders for subscription (indirect subscription right). However, the Management Board is authorized, subject to the Supervisory Board s consent, to exclude the shareholders subscription rights to the profit participation rights Consolidated Financial Statements 53

58 1. for fractional amounts resulting from a subscription ratio; 2. if the profit participation rights are organized similar to obligations, i.e. if they do not grant membership rights in respect of the Company, do not grant an interest in liquidation profits, and if the interest rate is not determined on the basis of the amount of net income, retained earnings, or the dividend; 3. insofar as profit participation rights are issued against contribution in kind for the purpose of the realization of business combinations or the acquisition of companies, company divisions, investments, or other assets, particularly of seagoing vessels or receivables. The Management Board is authorized, subject to the Supervisory Board s consent, to determine the further particulars of the issue and the terms of the profit participation rights, particularly their transferability, the interest rate, the issue price, the denomination, the term, the amount of annual distribution, the termination, and the participation in the appropriation of profits and liquidation proceeds. In partial utilization of this authorization, the Management Board, with the Supervisory Board s consent, issued 7,450,000 profit participation rights on 17 December 2010 at a face value of EUR 1.00 each. The profit participation rights were issued against contribution in kind. They serve the financing of the acquisition of the controlling interest in a shipping company. The profit participation rights primarily provide for a fixed interest and have a term of five years. For the years 2014 and 2015, profit participation of the holder of the profit participation rights is provided for in dependence on the distributions received from that shipping company. In addition, the holder of the profit participation rights holds an interest in realized hidden reserves out of the investment in the shipping company for a period of 10 years. Profit participation rights do not participate in the company s loss. Effective 31 December 2011, the Management Board issued profit participation rights at a face value of EUR 1.00 each with the Supervisory Board s consent. The issue of profit participation rights was made against contribution in kind in the amount of EUR 5,367k and against cash contribution in the amount of EUR 433k. The profit participation rights serve the financing of the acquisition of the controlling interest in a shipping company. The profit participation rights generally provide for fixed interest and have terms of seven years. Over the entire term, profit participation of the holder of the profit participation rights is provided for in dependence on the distributions received from that shipping company. In addition, the holder of the profit participation rights holds an interest in realized hidden reserves out of the investment in the shipping company over the entire term. Profit participation rights do not participate in the company s loss. The profit participation rights are generally due at final maturity, i.e. recurring payments on the profit participation rights are generally not provided for over the term. (19) Liabilities from financial derivatives (non-current) The disclosure relates to the current values of interest rate swaps for hedging variable interest payments under loan agreements. For further information please refer to note (44). The remaining terms to maturity of financial derivatives are as follows: in EUR /12/ /12/2010 Remaining terms between 1 and 5 years 11,130 8,272 Remaining terms of more than 5 years 3,072 1,299 Total 14,203 9, HCI Hammonia Shipping AG Annual Report 2011

59 (20) Non-controlling interests in equity Non-controlling interests in equity refer to the limited partnership interests of non-controlling shareholders in currently 12 singe-ship limited partnerships. The item can be broken down as follows: in EUR /12/ /12/2010 Non-controlling interests in limited liability capital 11,832 11,647 Interests in earnings -4,345-4,755 Special withdrawal accounts -1, Interests in hidden reserves/liabilities -1,899-1,943 3,902 4,363 As in the previous year, non-controlling interests in consolidated net income were recognized in interest income. The remaining terms to maturity of non-controlling interests in equity are as follows: in EUR /12/ /12/2010 Remaining terms of less than 1 year Remaining terms between 1 and 5 years 0 0 Remaining terms of more than 5 years 3,373 3,889 Total 3,902 4,363 Remaining terms to maturity of non-controlling interests in equity of less than one year relate to non-controlling shareholders entitlement to profits already accrued. These are therefore no liabilities from an economic viewpoint. Withdrawals out of the single-ship limited partnerships can only be made if there is sufficient liquidity, subject to a resolution of the shareholders in which HCI HAMMONIA SHIPPING AG must participate. (21) Financial liabilities (current) Current financial liabilities can be broken down as follows: in EUR /12/ /12/2010 Ship mortgage loans 61,153 37,029 Overdraft facilities 8,135 7,878 Deferred interest 1,639 1,111 70,927 46,018 Please also refer to note (17) for ship mortgage loans. Current financial liabilities have remaining terms to maturity of one year or less. (22) Trade payables The trade payables of EUR 1,887k (previous year: EUR 1,553k) all have remaining terms to maturity of one year or less. The item includes deferrals in the amount of EUR 991k (previous year: EUR 1,044k). Consolidated Financial Statements 55

60 (23) Liabilities to related parties Liabilities to related individuals and companies can be broken down as follows: in EUR /12/ /12/2010 Liabilities to contractual ship operating company and companies subject to its control Liabilities to unconsolidated affiliates 0 87 Liabilities to Atlantic Liabilities to company boards of HCI HAMMONIA SHIPPING AG Liabilities to related parties have remaining terms to maturity of one year or less. Please refer to note (46) for further information on related party transactions. (24) Income tax liabilities Current income tax liabilities include liabilities from municipal trade taxes in the amount of EUR 306k (previous year: EUR 270k) and liabilities from corporation taxes and solidarity surcharge in the amount of EUR 4k (previous year: EUR 3k). These liabilities have remaining terms to maturity of one year or less. (25) Other liabilities (current) Other current liabilities can be broken down as follows: in EUR /12/ /12/2010 Agreement on use of funds Antofagasta Liabilities to non-controlling shareholders Reimbursement obligations Debtors with credit balances Deferred income Miscellaneous tax liabilities 8 5 Other miscellaneous liabilities 2 2 1,670 1,126 The liabilities have remaining terms to maturity of one year or less. (26) Liabilities from financial derivatives (current) Current liabilities from financial derivatives exclusively relate to current values of obligations resulting from interest rate swap transactions, designated as part of hedges. Please also refer to note (44) for additional information. Notes to the consolidated income statement 56 HCI Hammonia Shipping AG Annual Report 2011

61 (27) Revenues This item states the shipping companies charter revenues that can be broken down as follows: in EUR Pool charter 28,750 28,536 Time charter 39,054 34,111 67,804 62,647 Revenues include pool charter revenues in the amount of EUR 479k (previous year: EUR 5,455k) that are one-off revenues resulting from the restructuring of liner shipping companies CSAV and CCNI. (28) Vessel operating costs Vessel operating costs can be broken down as follows: in EUR Costs for repair and equipment 4,429 3,073 Ship operating fees, commissions 3,239 2,909 Costs for ship personnel 11,324 8,921 Security costs Lubricating oil and grease used 2,351 2,040 Fuels used Insurance 2,581 2,339 Miscellaneous costs 1,079 1,481 26,109 21,718 (29) Other operating income Other operating income can be broken down as follows: in EUR Gains from the recognition of a negative difference from first-time consolidation 0 51 Project fee profit participation right Forward exchange transaction gains Other foreign exchange gains 554 1,555 Reimbursement from charterers 1, Reimbursement of costs for crane dismantling/erection Proceeds from the sale of fuel Write-up on property, plant and equipment 0 1,607 Miscellaneous ,727 5,745 Consolidated Financial Statements 57

62 Gains from the recognition of a negative difference reported for the previous year resulted from the first-time consolidation of MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG. (30) Other operating expenses Other operating expenses can be broken down as follows: in EUR Legal, audit and consultancy fees Costs relating to the acquisition of subsidiaries Foreign exchange losses relating t ship mortgage loans Forward exchange transaction losses Other foreign exchange losses Fees from controlling and administrative services and other services 1,525 1,500 Bad debt loss Other administrative expenses ,328 3,207 (31) Depreciation and amortization The HCI HAMMONIA SHIPPING Group includes amortization of intangible assets and depreciation of property, plant and equipment in this item. Depreciation and amortization can be broken down as follows: in EUR Amortization of intangible assets 0 4 Depreciation of property, plant and equipment 22,921 22,396 22,921 22,400 (32) Impairment The disclosure relates to impairment loss on trade receivables. Please also refer to note (6) (property, plant and equipment) and note (10) (trade receivables). (33) Interest income This item can be broken down as follows: in EUR Interest income from short-term deposits Other interest income Total interest income Up to financial year 2010, losses attributable to third-party limited partners were reported under the item Interest income. Beginning in financial year 2011, the share in loss of third-party limited partners is disclosed separately in the income statement (cf. note (35)). The prior-year amount has been adjusted accordingly by EUR 27k. 58 HCI Hammonia Shipping AG Annual Report 2011

63 (34) Interest expenses Interest expenses essentially result from financing the seagoing vessels and can be broken down as follows: in EUR Interest expense for ship mortgage loans 10,176 9,459 Interest expense for interest rate swaps 6,111 6,852 Interest expense for profit participation rights Other interest expenses ,613 16,331 Up to financial year 2010, profits attributable to third-party limited partners were reported under the item Interest expenses. Beginning in financial year 2011, the share in profit of third-party limited partners is disclosed separately in the income statement (cf. note 35). The prior-year amount has been adjusted accordingly by EUR 141k. (35) Financial expenses from share in profit of third-party limited partners This item concerns profit allocations to non-controlling shareholders of currently 12 single-ship limited partnerships. The limited partner s interests held by the non-controlling shareholders were reported as liabilities in accordance with IFRS regulations. Accordingly, profit allocations made in the financial year must be reported as part of the financial result. So far, the share in profit/loss of third-party limited partners was reported as part of interest income (share in loss) or interest expenses (share in profit). Due to the first-time recognition of MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG as of the end of the previous year, the share in profit attributable to non-controlling shareholders has increased considerably over the previous year. For better insight into the Group s profitability, the share in profit/loss of third-party limited partners is therefore now reported as a separate item in the income statement. The prior-year presentation of interest income and interest expenses have been adjusted accordingly. The item is comprised as follows: in EUR Share in profit Share in loss (36) Income taxes Taxes paid or owed on income as well as deferred taxes are recognized as income taxes. Income taxes comprise trade tax, corporation tax, and solidarity surcharge. Income tax expenses can be broken down by origin as follows: in EUR Current income tax expense Deferred income tax expense/income Consolidated Financial Statements 59

64 Current income tax expense relates to municipal trade taxes of single-ship limited partnerships in the amount of EUR 514k (previous year: EUR 86k). Corporation and municipal trade tax liabilities of the general partner are stated apart from that. German-based companies in the legal form of a corporation owe corporation tax at a rate of 15 % (previous year: 15 %) plus a solidarity surcharge of 5.5 % (previous year: 5.5 %) on corporation tax owed. In addition, the companies and subsidiaries in the legal form of partnerships are subject to municipal trade tax, the amount of which is determined on the basis of municipality-specific assessment rates. The notional income tax expense that would have arisen by applying the tax rate of the Group s parent HCI HAMMONIA SHIPPING AG of % (previous year: %) to IFRS consolidated earnings before taxes can be reconciled to income tax expenses reported in the income statement as follows: in EUR IFRS earnings before income taxes 295 4,924 Group tax rate in % % % Expected tax expense 95 1,589 Deviations due to tonnage taxation 749-1,128 Non-offsettable tax loss carry-forward Others 5 4 Tax expense/income as reported in the income statement Permanent differences comprise the effects of the share of consolidated earnings settled via tonnage tax. The use of corporation and trade tax loss carry-forwards is restricted. A positive taxable income of up to EUR 1,000k can be reduced by tax loss carry-forward without limitation while amounts exceeding this threshold can only be reduced by up to 60 % by an existing loss carry-forward. Deferred tax assets on temporary differences and tax loss carry-forward are recognized to the extent that their recoverability appears sufficiently certain in the near future. For temporary differences and tax loss carry-forwards for corporation tax purposes in the amount of EUR 8,771k (previous year: EUR 7,657k) and for trade tax purposes in the amount of EUR 9,939k (previous year: EUR 8,381k), no deferred tax assets were recognized in the financial year as the generation of sufficient taxable income for these amounts does not appear probable in the near future. The ability to carry forward tax losses in Germany is not subject to any restrictions under prevailing law. (37) Earnings per share Earnings per share reflect the portion of the earnings generated in a given period attributable to one share, dividing Group earnings by the weighted number of shares issued. Earnings per share may be diluted by so-called potential shares (such as convertible bonds or stock options). The HCI HAMMONIA SHIPPING Group does not have such potentially diluting agreements on the purchase of shares. Therefore basic earnings equal diluted earnings per share. Basic and diluted earnings per share are determined as follows: in EUR Consolidated net result for the year attributable to owners of the parent company EUR ,834 Weighted average number of issued shares number 136, ,414 Consolidated net result for the year attributable to owners of the parent per share EUR HCI Hammonia Shipping AG Annual Report 2011

65 Notes to the consolidated statement of cash flows (38) Basic information The statement of cash flows distinguishes between cash flows from operating, investing and financing activities. (39) Analysis of cash and cash equivalents Cash holdings of the parent result from acquisition cost contributions for the acquisition of a controlling interest in a single-ship limited partnership in the amount of EUR 916k. They are subject to an agreement on the utilization of funds and to conditional repayment in case the holding is not acquired. The holding was acquired in February Additional term deposit balances of the parent in the amount of USD 4,000k (EUR 3,091k) serve as collateral for the deferment agreements relating to seven single-ship limited partnerships (cf. note (44) (a) (iv)). The reconciliation of cash and cash equivalents with the item Cash and cash equivalents is as follows: in EUR 000 Cash and cash equivalents according to statement of cash flows 27,585 Funds subject to agreement on utilization 916 Liquidity reserve due to deferments 3,091 Cash and cash equivalents according to statement of financial position 31,592 Cash equivalents are term deposits with original terms to maturity of only a few days. (40) Explanation of cash flows The cash flow from operating activities is determined in application of the indirect method. It amounts to EUR 22,948k (previous year: EUR 29,382k). Cash flows from investing and financing activities are determined according to the direct method. (41) Non-cash business transactions During the current financial year, the Group engaged in the following non-cash investing and financing activities not entered in the statement of cash flows: The Group acquired a loan in the amount of EUR 5,367k by way of the issue of a profit participation right. (42) Other information on the statement of cash flows Until 30 November 2011, a waiver agreement with a bank consortium was in force (cf. note (44) (a) (iv)). In this agreement, it was established that three subsidiaries may only make liquidity distributions to their owners including HCI HAMMONIA SHIPPING AG as the parent if the remaining respective cash balances and unused overdraft exceed a total amount of USD 3,250k. According to the agreement, the subsidiaries involved have unrestricted disposal of their respective cash balances The subsidiaries involved are in negotiations about a further extension of the waiver agreement. The bank consortium is in agreement with the subsidiaries that the provision on the availability of a liquidity reserve in the above-stated amount remains unaffected. The agreement concerns cash in the total amount of EUR 7,535k (previous year: EUR 7,297k). As of the reporting date, unchanged from the previous year, the Group has unused overdraft facilities of EUR 0.7 million at its disposal. Consolidated Financial Statements 61

66 Notes on segment reporting (43) Basic information Pursuant to IFRS 8, the Group s separate segments must be defined in accordance with the so-called management approach. The deciding aspect is for which segments the Group s chief operating decision maker is provided with separate financial information for the assessment of performances and the allocation of resources. Due to a large number of transactions subject to consent also at the level of the single-ship limited partnerships, the parent s Management Board and Supervisory Board are to be collectively considered the responsible corporate entity. Management Board and Supervisory Board regularly receive financial information on the basis of consolidation. Targetactual comparisons are also prepared on the basis of consolidation. Forecast calculations are provided on aggregated basis while merely the changes in working capital relating to the respective ships are included. Separate information on the individual ships is generally not subject to regular reporting to the Supervisory Board. This is not considered necessary as the Group is a one-product enterprise with a uniform manufacturing process (chartering out container vessels to liner shipping companies). The Group s management of operations is based solely on the fleet s total result from operations as well as the daily charter proceeds. As a consequence there is no segment reporting as such. IFRS 8 stipulates segment information to be disclosed even for Groups that consist of a single segment. Thus the following information is provided: From chartering out container ships to third-party liner shipping companies, the Group generated revenues in the amount of EUR 67,804k in the financial year (previous year: EUR 62,647k). For each of the Group s 12 (previous year: 12) vessels there are separate charter agreements with liner shipping companies. However, the Group has joined so-called revenue pools with 8 (previous year: 8) ships. In pool arrangements, the revenues of all pool members are pooled, and a pool average is passed over to the individual parties involved. Pool revenues thus do not correspond with the charter rates agreed on with the individual liner shipping companies. As a consequence, no country-specific information can be disclosed for the ships under pool operation. As in the previous year, 3 ships not included in pool arrangements are chartered out to a Denmark-based liner shipping company. Revenues of EUR 31,895k (previous year: EUR 34,111k) were generated under these charter agreements. One container vessel acquired at the end of 2010 within the framework of a business combination is operated under time charter for a Kuwait-based liner shipping company. Generated revenues came to EUR 7,159k. Unchanged from the previous year, the Group s property, plant and equipment in the amount of EUR 498,915k (previous year: EUR 507,318k) exclusively relate to container vessels. These are used worldwide on changing shipping routes. The companies owning these container ships are all based in the country in which the parent maintains its registered office. 47 % (previous year: 54 %) of the revenues were generated with a single client. This client is the world s largest liner shipping company for container vessels. Another 11 % (previous year: 0 %) were generated with another single client. Other disclosures (44) Financial instruments and financial risk management (a) Financial instruments (i) Information on financial instruments The HCI HAMMONIA SHIPPING Group uses a multitude of financial instruments. 62 HCI Hammonia Shipping AG Annual Report 2011

67 The following table presents the financial assets and liabilities according to the categories for financial instruments as defined by IAS 32/39 or rather according to the classification provided by IFRS 7. With respect to the Group, the classification according to IFRS 7 corresponds with the categories of financial instruments according to IAS 32/39. In order to allow the reconciliation with items reported in the statement of financial position, assets and liabilities outside the scope of definitions of IAS 39, or rather not attributed to any category according to IAS 32/39, are reported separately as non-financial assets/non-financial liabilities (NFA/NFL). Assets 31/12/2011 in EUR 000 Carrying amount statement of financial position AFV AFS LAR NFA Non-current assets Intangible assets Property, plant and equipment 498, ,915 Investments Other assets 5, ,367 0 Current assets Inventories 1, ,760 Trade receivables 1, ,422 0 Receivables from related parties Income tax receivables Other assets 2, , Cash and cash equivalents 31, ,592 0 Assets 31/12/2010 in EUR 000 Carrying amount statement of financial position AFV AFS LAR NFA Non-current assets Intangible assets Property, plant and equipment 507, ,318 Investments Current assets Inventories 1, ,534 Trade receivables Receivables from related parties Income tax receivables Other assets 2, ,103 Receivables from financial derivatives Cash and cash equivalents 26, ,116 0 Consolidated Financial Statements 63

68 liabilities 31/12/2011 in EUR 000 Non-current liabilities Carrying amount statement of financial position LAC DS NFL Financial liabilities 263, , Profit participation capital 13,002 13, Liabilities from financial derivatives 14, ,203 0 Non-controlling interests in equity 3,902 3, Current liabilities Financial liabilities 70,927 70, Trade payables 1,887 1, Liabilities to related parties Income tax liabilities Other liabilities 1,670 1, Liabilities from financial derivatives 5, ,219 0 liabilities 31/12/2010 in EUR 000 Non-current liabilities Carrying amount statement of financial position LAC DS NFL Financial liabilities 297, , Profit participation capital 7,339 7, Liabilities from financial derivatives 9, ,571 0 Non-controlling interests in equity 4,363 4, Current liabilities Financial liabilities 46,018 46, Trade payables 1,553 1, Liabilities to related parties Income tax liabilities Other liabilities 1, Liabilities from financial derivatives 6, ,127 0 The category financial assets at fair value through profit and loss (AFV) is measured at fair value. The category available-for-sale financial assets (AFS) is measured at fair value or, if the fair value cannot be reliably determined, at acquisition cost. The categories AFV and LFV include no financial assets or liabilities held for trading in accordance with IAS 39 but solely financial assets or liabilities attributed to said categories upon first-time recognition. Derivatives in hedging relationships are not attributed to any of the categories according to IAS 39. They were therefore attributed to the category derivatives in hedging relationships (DS). The categories loans and receivables (LAR) and financial liabilities measured at amortized cost (LAC) are recognized at amortized acquisition cost. 64 HCI Hammonia Shipping AG Annual Report 2011

69 There were no reclassifications between the different categories of financial instruments in the financial year. The following table contrasts carrying amounts with fair values for each category of financial assets and financial liabilities: in EUR 000 Non-current assets IAS 39 category or IFRS 7 class 31/12/2011 Carrying amount 31/12/2011 Fair value 31/12/2010 Carrying amount 31/12/2010 Fair value Investments AFS Other assets LAR 5,367 5, Current assets Trade receivables LAR 1,422 1, Receivables from related parties LAR Other assets LAR 2,028 2, Receivables from financial derivatives AFV Cash and cash equivalents LAR 31,592 31,592 26,116 26,116 Non-current liabilities Financial liabilities LAC 263, , , ,285 Profit participation capital LAC 13,002 13,002 7,339 7,339 Liabilities from financial derivatives DS 14,203 14,203 9,571 9,571 Non-controlling interests in equity LAC 3,902 3,902 4,363 4,363 Current liabilities Financial liabilities LAC 70,927 71,335 46,018 47,154 Trade payables LAC 1,887 1,887 1,553 1,553 Liabilities to related parties LAC Other liabilities LAC 1,653 1, Liabilities from financial derivatives DS 5,219 5,219 6,127 6,127 Aggregated according to classes/categories Available-for-sale financial assets AFS Loans and receivables LAR 40,488 40,488 27,302 27,302 Financial assets at fair value through profit and loss AFV Financial liabilities measured at amortized cost LAC 355, , , ,851 Derivates in hedging relationships DS 19,422 19,422 15,698 15,698 With regard to unquoted financial instruments with short remaining terms to maturity such as current receivables, cash and cash equivalents and current liabilities, carrying amounts as of the reporting date approximate the respective fair values. With regard to unquoted financial instruments with long remaining terms to maturity such as non-current receivables and liabilities, the fair value corresponds to the respective financial instrument s cash value in application of current interest parameters. Consolidated Financial Statements 65

70 As of 31 December 2011 the financial assets and liabilities recognized at fair value can be broken down by fair value hierarchy level as defined by IFRS 7 as follows: Fair-value measurement as of 31/12/2011 in EUR 000 Total Level 1 Level 2 Level 3 Financial liabilities Non-current liabilities Liabilities from financial derivatives 14, ,203 0 Current liabilities Liabilities from financial derivatives 5, ,219 0 As of 31 December 2010, the following attribution applied: Fair-value measurement as of 31/12/2010 in EUR 000 Total Level 1 Level 2 Level 3 Financial assets Receivables from financial derivatives Fair-value measurement as of 31/12/2010 in EUR 000 Total Level 1 Level 2 Level 3 Financial liabilities Non-current liabilities Liabilities from financial derivatives 9, ,571 0 Current liabilities Liabilities from financial derivatives 6, ,127 0 Net results from financial instruments are allocated to the separate classes or categories of IAS 39 as follows: 2011 From subsequent measurement 2010 From subsequent measurement in EUR 000 At fair value Currency translation Valuation allowances From disposals Total At fair value Currency translation Valuation allowances From disposals Total Net gains/net losses Financial assets at fair value through profit or loss (AFV) Loans and receivables (LAR) Financial liabilities measured at amortized cost (LAC) 0-1, The result of currency translations in the category LAR essentially relates to cash and cash equivalents. Interest relating to financial instruments is included in the interest result. 66 HCI Hammonia Shipping AG Annual Report 2011

71 Interest income or interest expenses relating to financial assets or financial liabilities not recognized at fair value through profit or loss and determined according to the effective interest method came to the following amounts in the two past financial years: in EUR Interest income Interest expenses -16,613-16,331 Share in profit/loss of third-party limited partners Income and expenses relating to fees and commission not included in the calculation of the effective interest rate apply neither for this financial year nor the previous one. In the past financial year and the previous one, no interest income attributed to impaired financial assets in accordance with IAS 39.AG 93 had to be recognized. (ii) Information on derivative financial instruments Due to its international scope of business activities, the HCI HAMMONIA SHIPPING Group is particularly exposed to risks of changes in interest and exchange rates. In order to contain these risks, derivative financial instruments are used. The use of derivative financial instruments is regulated by corresponding guidelines in the HCI HAMMONIA SHIPPING Group and exclusively serves the hedging of existing underlying transactions as well as of planned transactions with sufficiently high probability of occurrence. Said binding guidelines determine the areas of responsibility, the scope of action, and reporting duties. According to these guidelines, commercial transactions involving derivative financial instruments may only be concluded with banking institutions that have excellent credit ratings. The HCI HAMMONIA SHIPPING Group uses forward exchange transactions to hedge concluded or expected transactions. Within the framework of interest hedging, risks are contained by interest derivatives in the form of interest rate swaps. Face amounts and fair values of interest and currency derivatives can be broken down as follows: 31/12/ /12/2010 in EUR 000 Face amount Fair value Face amount Fair value Assets Currency derivatives 0 0 1, Interest derivatives Total 0 0 1, Liabilities Currency derivatives Interest derivatives 179,128-19, ,532-15,698 Total 179,128-19, ,532-15,698 (iii) Information on hedging relationships The HCI HAMMONIA SHIPPING Group recognizes certain derivatives that meet the criteria defined by IAS 39 for the designation of hedging relationships as cash flow hedges in accordance with IAS 39. Cash flow hedges are made to hedge interest rate risks in connection with variable cash flows. The effectiveness of the hedges is assessed as of the reporting date in application of the dollar offset method (benchmark approach). Consolidated Financial Statements 67

72 As of 31 December 2011 the following material hedging relationships meet the requirements of IAS 39 for the disclosure as cash flow hedges: Hedged item Hedge Disbursement 31/12/2011 USD 000/ JPY 000 MS HAMMONIA ROMA 10,000 USD MS HAMMONIA TEUTONICA 10,000 USD MS HAMMONIA MASSILIA 10,000 USD MS HAMMONIA HOLSATIA 10,000 USD MS HAMMONIA BAVARIA 15,708 USD MS HAMMONIA POMERENIA 13,647 USD MS SAXONIA 25,856 USD MS WESTPHALIA 25,961 USD MS HAMMONIA DANIA 46,499 USD MS HAMMONIA FIONIA 46,499 USD MS HAMMONIA HAFNIA 46,499 USD MS HAMMONIA PESCARA 8,000 USD MS HAMMONIA PESCARA 732,690 JPY Interest rate Maturity Face amount 31/12/2011 USD 000/ JPY 000 Interest rate % Current value EUR 000 USD-LIBOR + margin 30/01/ ,000 USD USD-LIBOR + margin 12/01/ ,000 USD USD-LIBOR + margin 20/01/ ,000 USD USD-LIBOR + margin 12/01/ ,000 USD USD-LIBOR + margin 03/01/2023 7,152 USD USD-LIBOR + margin 29/11/2021 6,135 USD USD-LIBOR + margin 31/12/ ,856 USD USD-LIBOR + margin 28/02/ ,673 USD USD-LIBOR + margin 30/05/ ,499 USD ,417 USD-LIBOR + margin 30/05/ ,499 USD ,562 USD-LIBOR + margin 30/05/ ,499 USD ,398 USD-LIBOR + margin 30/04/2023 8,000 USD JPY-LIBOR + margin 30/10/ ,690 JPY Type Term to maturity Beginning End Interest rate swap 30/01/ /01/2015 Interest rate swap 12/01/ /01/2015 Interest rate swap 09/03/ /01/2015 Interest rate swap 02/04/ /01/2015 Interest rate swap 04/10/ /01/2015 Interest rate swap 30/08/ /08/2016 Interest rate swap 30/09/ /12/2014 Interest rate swap 30/08/ /08/2016 Interest rate swap 30/05/ /05/2018 Interest rate swap 30/05/ /05/2018 Interest rate swap 31/05/ /05/2018 Interest rate swap 31/01/ /01/2016 Interest rate swap 03/08/ /08/ , HCI Hammonia Shipping AG Annual Report 2011

73 As of 31 December 2010 the following material hedging relationships met the requirements of IAS 39 for the disclosure as cash flow hedges: Hedged item Hedge Disbursement 31/12/2010 USD 000/ JPY 000 Interest rate Maturity Face amount 31/12/2010 USD 000/ JPY 000 Interest rate % Current value EUR 000 Type Term to maturity Beginning End MS HAMMONIA ROMA 10,000 USD USD-LIBOR + margin 30/01/ ,000 USD Interest rate swap 30/01/ /01/2015 MS HAMMONIA TEUTONICA 10,000 USD USD-LIBOR + margin 12/01/ ,000 USD Interest rate swap 12/01/ /01/2015 MS HAMMONIA MASSILIA 10,000 USD USD-LIBOR + margin 10/01/ ,000 USD Interest rate swap 12/01/ /01/2012 MS HAMMONIA HOLSATIA 10,000 USD USD-LIBOR + margin 12/01/ ,000 USD Interest rate swap 02/04/ /01/2015 MS HAMMONIA BAVARIA 16,246 USD USD-LIBOR + margin 03/01/2023 7,740 USD Interest rate swap 04/10/ /01/2015 MS HAMMONIA POMERENIA 13,903 USD USD-LIBOR + margin 29/11/2021 6,693 USD Interest rate swap 29/08/ /08/2011 MS SAXONIA 26,374 USD USD-LIBOR + margin 31/12/ ,892 USD Interest rate swap 30/09/ /12/2014 MS WESTPHALIA 26,538 USD USD-LIBOR + margin 28/02/ ,827 USD Interest rate swap 29/08/ /08/2011 MS HAMMONIA DANIA 52,730 USD USD-LIBOR + margin 30/05/ ,730 USD ,353 Interest rate swap 30/05/ /05/2018 MS HAMMONIA FIONIA 52,730 USD USD-LIBOR + margin 30/05/ ,730 USD ,483 Interest rate swap 30/05/ /05/2018 MS HAMMONIA HAFNIA 56,480 USD USD-LIBOR + margin 30/05/ ,500 USD ,262 Interest rate swap 30/05/ /05/2013 MS Benjamin Schulte 6,500 USD USD-LIBOR + margin 30/04/2023 6,500 USD Interest rate swap 30/04/ /04/2011 MS Benjamin Schulte 8,000 USD USD-LIBOR + margin 30/04/2023 8,000 USD Interest rate swap 30/04/ /04/2013 MS Benjamin Schulte 732,690 JPY JPY-LIBOR + margin 30/10/ ,690 JPY Interest rate swap 03/08/ /08/ ,698 Consolidated Financial Statements 69

74 Current values of interest rate swaps are determined according to the mark-to-market method. Measurements are based on interest yields of approx. 1.3 % (1 year; previous year: 0.8 %), approx. 0.7 % (2 years; previous year: 0.8 %), approx. 1.2 % (5 years; previous year: 2.2 %), up to approx. 2.0 % (10 years; previous year: 3.4 %). In the financial year changes in fair value of interest rate swaps were recognized outside profit or loss in equity in the amount of EUR -9,724k (previous year: EUR -10,227k). EUR 6,112k (previous year: EUR 6,851k) were transferred from equity to the income statement (item interest expenses ) in the financial year. In the years of comparison no inefficiencies had to be recorded with respect to hedging relationships. (iv) Information on delayed payments and contract violations In financial years 2009 and 2010 the Group had come to an agreement with a bank consortium on alleged violations of contractual obligations with respect to individual ship mortgage loans. This agreement expired as of 30 November HCI HAMMONIA SHIPPING AG and the three subsidiaries involved are currently in negotiations about another extension of the existing waiver of the loan-to-value clause. This clause stipulates that the ship value, without consideration of any charter agreement, must not fall below a certain threshold. Due to falling ship prices as of recent, the financing banks hold the view that that threshold has been undercut. In order to avoid a potential legal dispute with an important financing partner, the Group had agreed to a waiver agreement without prejudice to its own legal position. In return, the bank consortium waived taking action with respect to potential obligations under loan agreements for the term of the waiver agreement. Apart from an increased credit margin, the agreement stipulated that HCI HAMMONIA SHIPPING AG as the involved subsidiaries parent company may withdraw liquid funds only if the respective subsidiaries remaining cash balances and unused overdraft facilities exceed a total amount of USD 3,250k. The subsidiaries involved have unrestricted disposal of their respective cash balances. Even though the waiver expired at the end of 2011, its provisions are applied unchanged. The Group companies involved have received a draft from the financing banks for an addendum to the loan agreement, the terms and conditions of which are in part subject to negotiation, though. In respect of the financing of the six 2,500 TEU ships, HCI HAMMONIA SHIPPING AG and the shipping companies involved have signed the addenda to the existing loan agreements. According to the addenda, the shipping companies involved may defer four quarterly payments each. The shipping companies have made full use of this in financial years 2010 and Payments deferred amount to altogether USD 13,380k as of the end of the financial year (previous year: USD 5,582k). The loans affected by the deferred redemption payments were valued at altogether USD 170,422k (previous year: USD 176,004k) as of 31 December 2011, including the deferred amounts. In return, the agreements include an increase of the interest margin by 0.75 % points with respect to the six ship mortgage loans and the corresponding overdraft facilities. The deferred amounts were charged with another margin increase. HCI HAMMONIA SHIPPING AG has given guarantees in favour of the banks and committed itself to have available a minimum liquidity in the amount of USD 4,000k at the level of the holding company. As soon as the ships reach the initially scheduled repayment profile, the new margin s reduction is provided for. For the 3,100 TEU ship MS WESTPHALIA, an addendum to the loan agreement was signed by the shipping company and HCI HAMMONIA SHIPPING AG at the end of April 2011 as well. This addendum allows for up to eight deferments of quarterly payments and provides for a pay-as-you-earn structure for catching up with the deferments made use of. Payments deferred amount to altogether USD 4,616k as of the end of the financial year (previous year: USD 2,885k). The loans affected by the deferred redemption payments were valued at altogether USD 25,961k (previous year: USD 26,538k) as of 31 December 2011, including the deferred amounts. In return for the adjustment of the loan agreement, the loan s interest margin was increased by 1.25 % points. The deferred amounts were charged with another margin increase. HCI HAMMONIA SHIPPING AG has committed itself to to have available a minimum liquidity in the amount of USD 4,000k at the level of the holding company and to give guarantees in favor of the shipping company. As soon as the ship reaches the initially scheduled repayment profile, the new margin s reduction is provided for. 70 HCI Hammonia Shipping AG Annual Report 2011

75 Following lengthy negotiations, there is now also a board resolution of the financing bank for the second 3,100 TEU ship, the MS SAXONIA. The terms and conditions are similar to those relating to the MS WESTPHALIA. Accordingly, it is possible to defer up to eight quarterly payments. As of 31 December 2011 the eight permitted deferments of quarterly payments had been made use of. The draft of an addendum to the loan agreement and the collateral documentation is presently being brought into agreement with the bank and is scheduled for signing soon. Payments deferred amount to altogether USD 4,144k as of the end of the financial year (previous year: USD 2,590k). The loans affected by the deferred redemption payments were valued at altogether USD 25,856k (previous year: USD 26,374k) as of 31 December 2011, including the deferred amounts. As there is no signed addendum to the loan agreement as of the reporting date, deferred payments are reported under current financial liabilities. (b) Financial risk management The HCI HAMMONIA SHIPPING Group has a central risk management system for the identification, measurement, and control of risks. With respect to payments made or received or planned to be made or received throughout the Group, risk exposures result from market risks (interest rate risks and currency risks), credit risks, and liquidity risks. Interest rate risks are controlled through a combination of fixed and variable interest items (through entering into interest rate hedges). Currency risks from anticipated payments in foreign currency are contained by the use of currency hedges and similar instruments. Risks resulting from fluctuations in the charter markets are reduced by operating the seagoing vessels in pool arrangements and the careful selection of charterers. Liquidity risks are managed by the Group-wide controlling of anticipated income and expenses as well as through lines of credit. (i) Financial risks Due to the international scope of its business operations, the HCI HAMMONIA SHIPPING Group is exposed to a number of financial risks. These especially include the effects of changes in exchange rates and interest rates. These risks are reduced within the framework of the existing risk management process. Currency risk Due to the fact that the major part of income and expenses connected with business activities relates to one currency the USD, the Group s currency risk resulting from exchange rate fluctuations is altogether limited. The USD is the functional currency of the single-ship limited partnerships. Currency risks here merely concern the measurement of cash and cash equivalents held in EUR and trade payables made out in EUR. For one single-ship limited partnership there is a limited currency risk due to a ship mortgage loan denominated in JPY. The functional currency of HCI HAMMONIA SHIPPING AG is the EUR. The payment of administrative costs and, above all, distributions to the shareholders of HCI HAMMONIA SHIPPING AG are made in EUR. Material currency risks exist for the Group on the one hand with respect to the transformation of equity capital raised on the level of HCI HAMMONIA SHIP- PING AG within the scope of capital increases into USD to be used as own funds for the purchase of seagoing vessels. On the other hand, currency risks exist with respect to surpluses generated in USD on the level of the single-ship limited partnerships that have to be transformed into EUR to be used by HCI HAMMONIA SHIPPING AG for the payment of own costs as well as for distributions to the shareholders. Further currency risks arise from fixed term deposits denominated in USD. In order to contain these risks, the Group generally applies currency hedges. Consolidated Financial Statements 71

76 Currency risks within the meaning of IFRS 7 result from primary and derivative monetary financial instruments whose currency of issue differs from the Company s functional currency. For the determination of sensitivities presented in the following table, a hypothetical currency revaluation or devaluation of the EUR in relation to the USD, or the JPY in relation to the USD, as of 31 December 2011 and 31 December 2010 by 10 % is assumed. All other variables remain unchanged. On these conditions, the following material effects on earnings (EBT) and thus on the generated equity of the HCI HAMMONIA SHIPPING Group would have resulted: Earnings Equity in EUR 000 % USD exchange rate fluctuation JPY exchange rate fluctuation Interest rate risk Risks resulting from interest rate changes generally exist for the HCI HAMMONIA SHIPPING Group in connection with loans taken out for financing the acquisition of seagoing vessels. The loan agreements provide for variable interest rates for future loans payable. In order to reduce the risk of interest rate changes due to the variable interest on loans taken out, the Group entered into interest rate hedges (interest rate swaps). The interest rate hedges are designated as cash flow hedges and were deemed fully effective as of the reporting date. A hypothetical increase or decrease of the market interest level by 50 basis points (parallel translation of the interest curves), respectively, and otherwise unchanged variables would have the following effects on earnings (EBT) and equity, affecting the financial result: Earnings Equity in EUR 000 Basis points Adjustment of the interest level ,407 2, ,542-2,473 Due to the low interest levels prevailing in financial years 2010 and 2011 with interest rates below 0.5 % for 3-month LIBOR, the effects of an upward and downward adjustment by 50 basis points are different. The disproportionate effect of an increase or decrease in the market interest level on equity results from the reproduction of the current values of interest rate swaps in equity insofar as these are designated as hedging instruments in cash flow hedges. (ii) Default risk The HCI HAMMONIA SHIPPING Group is exposed to the risk that business partners cannot fulfill their obligations. In order to reduce this risk of default, the maximum amount of which corresponds to the carrying amounts recognized for the respective financial assets, appraisals of creditworthiness are carried out. For identifiable default risks especially with regard to trade receivables, adequate valuation allowances are made. 72 HCI Hammonia Shipping AG Annual Report 2011

77 Changes in valuation allowances made for trade receivables are as follows: in EUR January 1,059 1,984 Exchange rate difference Appropriation Utilization Releases December 1,592 1,059 Criteria regarded for the creation of valuation allowances are the number of days overdue and, in the individual case, the assessment of the client s (charterer s) financial situation and the client s payment history. Valuation allowances made relate to receivables from charterers that were written down according to the above-mentioned criteria. Impaired receivables are derecognized if facts suggest that the receivable must be classified as irrecoverable. This is the case for instance if a client is insolvent. To answer the question whether there is a risk concentration, receivables at default risk against separate clients are summarized if it is known that these clients are affiliates in a Group of companies. Apart from the fully written-down receivables, no further default risks or risk concentrations have been identified. The theoretical maximum default risk comes to the following amount: in EUR /12/ /12/2010 Trade receivables 1, Receivables from related parties 79 9 Other financial assets 2, Receivables from financial derivatives Cash and cash equivalents 31,592 26,116 Maximum default risk 35,122 27,470 Trade receivables are for the most part receivables from revenue pools and liner shipping companies. They are not hedged by any special instruments. Bank deposits are held only at partners with impeccable credit ratings. Consolidated Financial Statements 73

78 Financial assets that were not impaired but overdue as of the reporting date can be broken down as follows: thereof: neither impaired nor overdue as of the reporting date thereof: not impaired as of the reporting date and overdue in the following time bands in EUR 000 Carrying amount Less than 30 days Between 30 and 60 days Between 61 and 90 days Between 91 and 180 days Between 181 and 360 days More than 360 days Trade receivables 31 December , , December Receivables from related parties 31 December December Other financial assets 31 December ,029 1, December (iii) Liquidity risk Liquidity management safeguards the maintenance of liquidity in the HCI HAMMONIA SHIPPING Group at any given time. It also makes sure that cash and cash equivalents are always available in a sufficient amount to cover business operations and investments. The minimizing of financing costs is a significant additional prerequisite to an efficient financing management. Generally speaking, open items are intended to be refinanced in matching maturities. As refinancing instruments, cash or capital market products such as loans or guarantees can be utilized. The required basic data are determined through monthly rolling liquidity planning with a planning horizon to the end of the current year and on an annual basis beyond that. Liquidity planning is subject to periodical deviation analyses. The following table presents the contractually agreed undiscounted interest and redemption payments on primary financial liabilities and derivative financial instruments with negative fair value or rather derivatives in hedging relationships: Carrying amount Cash flows up to 1 year Cash flows 1 to 5 years Cash flows more than 5 years in EUR /12/2011 Interest Repayment Interest Repayment Interest Repayment Primary financial liabilities Financial liabilities 334,882 9,963 40,177 29, ,887 13, ,351 Profit participation capital 13, ,042 7, ,800 Non-controlling interests in equity 3, ,373 Trade payables 1, , Liabilities to related parties Other liabilities 1, , Derivative financial liabilities Derivatives in hedging relationships 19,422 5, , , HCI Hammonia Shipping AG Annual Report 2011

79 Included were all instruments held as of 31 December 2011 for which payments were already contractually agreed. Amounts in foreign currency were translated at the reporting date s exchange rate. The variable interest payments relating to financial instruments were determined on the basis of most recently fixed interest rates prior to 31 December Net payments from interest rate swaps were determined according to the forward rates the valuation was based on. Financial liabilities repayable at any time are generally attributed to the narrowest time band. The corresponding data as of 31 December 2010 follow in the next table: Carrying amount Cash flows up to 1 year Cash flows 1 to 5 years Cash flows more than 5 years in EUR /12/2010 Interest Repayment Interest Repayment Interest Repayment Primary financial liabilities Financial liabilities 343,991 8,531 46,309 26, ,866 14, ,426 Non-controlling interests in equity 7, ,095 7, Trade payables 4, ,889 Liabilities to related parties 1, , Other liabilities Derivative financial liabilities Liabilities from financial derivatives Derivatives in hedging relationships 15,698 6, , ,518 0 (iv) Capital management The capital management of the HCI HAMMONIA SHIPPING Group particularly focuses on maintaining a strong equity base. The Management Board regularly monitors the net debt position. The following table presents shareholders equity, the equity-to-assets ratio, and net financial indebtedness: 31/12/ /12/2010 Change Equity in EUR , ,534 2,395 Equity-to-assets ratio in % 30,6 30,4 0,3 Net financial indebtedness/net financial surplus in EUR , ,875 14,585 Net financial indebtedness is calculated as the difference between financial liabilities and cash and cash equivalents. The decrease in net financial indebtedness compared to the previous year essentially results from the continued repayment on ship mortgage loans. The objectives of capital management were considered achieved in the years of comparison. Furthermore, the capital management of the HCI HAMMONIA SHIPPING Group is also aimed at the dividend level as the HCI HAMMONIA SHIPPING Group seeks to provide its shareholders with an adequate dividend yield. In financial years 2010 and 2011 HCI HAMMONIA SHIPPING AG did not distribute dividends to its shareholders because of the effects of the shipping crisis. For the medium term the Management Board aims at a dividend yield of 6.5 % based on the share capital and the capital reserve of HCI HAMMONIA SHIPPING AG. HCI HAMMONIA SHIPPING AG is not subject to statutory capital requirements. In particular, the Company does not have any obligation to dispose of or otherwise issue shares in connection with existing share-based payment schemes or convertible bonds. Please refer to note (16) (a) for information on authorized capital. Consolidated Financial Statements 75

80 (45) Operating leases The charter transactions recorded under the item revenues involve so-called operating leases in accordance with IAS in conjunction with IAS The operating leases relate to different types of charter transactions. The ships of the 7,800 TEU class are chartered out to the world s largest container liner shipping company under longterm time charters. One container vessel of the 4,250 TEU class acquired at the end of 2010 within the framework of a business combination is chartered out to a large liner shipping company under medium-term time charter. The ships of the 2,500 TEU and 3,100 TEU classes are operated in two respective revenue pool arrangements. Under these arrangements, the individual ships enter into individual charter agreements with liner shipping companies; however, the revenues of all pool ships are pooled, and a charter rate is paid out to the pool members calculated as the average of all pool partners involved. Future pool rates are thus dependent on the follow-up charter contracts of all pool partners involved. Therefore the exact amount of pool rates realizable for the HCI HAMMONIA SHIPPING Group in the next years from the membership in the two revenue pool arrangements is uncertain. The following table presents the future minimum charter rates in accordance with IAS (a), determined exclusively on the basis of binding pool charter agreements (not including follow-up charters) and the directly realizable charter rates from time charters, arranged according to the terms of contract: Minimum lease rates in EUR 000 Up to 1 year 1 5 years > 5 years Total 53, ,778 37, ,578 (previous year) (55,597) (165,668) (70,425) (291,690) Charter agreements are concluded at customary terms and conditions and include cost transfer to the owner with respect to ship personnel, insurance, and other vessel operating costs, yet not including fuels and other ship travel cost. The Company collected EUR 67,804k from operating leases in the financial year (previous year: EUR 62,647k). (46) Other financial obligations As of the reporting date there are other financial obligations of EUR 1,659k (previous year: EUR 1,614k) per year arising from the agreement for consultancy and other services concluded with HAMMONIA Reederei GmbH & Co. KG, Hamburg. These are determined on the basis of an annual rate of 1.0 % of the respective equity capital of HCI HAMMONIA SHIP- PING AG. The contract has a remaining term of 15.5 years as of the reporting date. Including advance payments, the sum of financial obligations thus amounts to EUR 25,710k as of the reporting date. (47) Related party disclosures (a) Basic information In accordance with IAS 24, related parties of the HCI HAMMONIA SHIPPING Group are individuals and companies that either control the Group or have a significant influence over the Group, or are controlled by the Group or are subject to its significant influence. Balances and business transactions between the companies included in the consolidated financial statements, regarded as related parties, were eliminated by way of consolidation and are not explained in this note. Details on business transactions between the Group and other related companies and individuals are presented in the following. One of the managing directors of HCI Concept GmbH & Co. KG is also a member of the Management Board of HCI HAM- MONIA SHIPPING AG. HCI Concept GmbH & Co. KG and its affiliates of the HCI Group are therefore considered related parties. 76 HCI Hammonia Shipping AG Annual Report 2011

81 HAMMONIA Reederei GmbH & Co. KG and its affiliates are considered related parties due to the fact that the company is the contractual ship operator and managing limited partner of the single-ship limited partnerships and because one of its managing directors is also a member of the Management Board of HCI HAMMONIA SHIPPING AG. One executive of the issuing house ATLANTIC Gesellschaft zur Vermittlung internationaler Beteiligungen mbh & Co. KG (hereafter referred to as Atlantic ) was managing director of the general partner of MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG until 30 August Atlantic and its affiliates are therefore considered related parties. Furthermore, the members of the Management Board and the Supervisory Board of HCI HAMMONIA SHIPPING AG are related parties, as are the subsidiaries of the HCI HAMMONIA SHIPPING Group. In addition to the business relationships with the subsidiaries included in the consolidated financial statements by way of full consolidation, the following business relationships existed with related parties. (b) Relationships with HCI Concept GmbH & Co. KG HCI HAMMONIA SHIPPING AG had originally concluded an agreement with the predecessor Company of HCI Concept GmbH & Co. KG on the provision of controlling and administrative services and other services with a term of 20 years (service agreement) effective 1 July 2007, according to which HCI Concept GmbH & Co. KG received a consideration in the amount of 1.0 % per annum of the Company s respective equity within the meaning of Section 266 (3) letter a HGB (German Commercial Code) plus sales tax if applicable. The payment was due in proportionate amounts at the end of each quarter, based on the company s equity as of the end of the preceding quarter as reported in the respective interim financial statements for that quarter. Effective 1 October 2009, HCI Concept GmbH & Co. KG assigned its rights under said agreement to HAMMONIA Reederei GmbH & Co. KG. HCI Concept GmbH & Co. KG assumed the obligation to HAMMONIA Reederei GmbH & Co. KG to continue rendering the services under said agreement to HCI HAMMONIA SHIPPING AG until 30 December HCI Concept GmbH & Co. KG has the right, valid between 1 October 2010 and 31 December 2014, and subject to the consent of HCI HAMMONIA SHIPPING AG, to repurchase the service agreement from HAMMONIA Reederei GmbH & Co. KG and to adopt it. (c) Relationships with HAMMONIA Reederei GmbH & Co. KG The following business relationships existed with HAMMONIA Reederei GmbH & Co. KG and its affiliates in the years of comparison: Statement of financial position (in EUR 000) 31/12/ /12/2010 Receivables from HAMMONIA Reederei GmbH & Co. KG and its affiliates 0 10 Liabilities to HAMMONIA Reederei GmbH & Co. KG and its affiliates Income statement (in EUR 000) 31/12/ /12/2010 Vessel operating costs (operating fees) 2,624 2,568 Other operating expenses (service fee) 1,525 1,500 HCI HAMMONIA SHIPPING AG has concluded an agreement with HAMMONIA Reederei GmbH & Co. KG on cooperation at the level of the single-ship limited partnerships (in the following: cooperation agreement ). Pursuant to the cooperation agreement, HAMMONIA Reederei GmbH & Co. KG concludes ship operating contracts with the single-ship limited partnerships under which the company provides the customary ship operating services and receives a consideration of 4 % of the collected gross freight revenues. With respect to new ship constructions, HAMMONIA Reederei GmbH & Co. KG as contractual ship operator receives EUR 125k in the first year of operation for increased ship operation expenses from the respective single-ship limited partnership. For preparatory ship operation, HAMMONIA Reederei GmbH & Co. KG receives EUR 25k from the respective single-ship limited partnerships whether new ships or ships bought second-hand are concerned. As compensation for increased ship operating expenses and advisory services in connection with the sale of Consolidated Financial Statements 77

82 a vessel or in the context of liquidation proceedings in case of a total loss, HAMMONIA Reederei GmbH & Co. KG receives a lump-sum payment of 2 % of the gross sales proceeds or the insurance benefit payment plus applicable sales tax from the respective subsidiary. The compensation does not have to be paid if the vessel is sold to HAMMONIA Reederei GmbH & Co. KG or a related party of HAMMONIA Reederei GmbH & Co. KG. This also applies if HAMMONIA Reederei GmbH & Co. KG exercises an existing purchase option. A decision on the sale of the ships is subject to the approval of all partners within the first 10 years following acquisition of the vessels. The partners of the single-ship limited partnerships have determined that any disposal of the vessels during the above-mentioned period shall only be made in exceptional circumstances. In view of its status as contractual ship operator, HAMMONIA Reederei GmbH & Co. KG is always entitled to withhold its approval to the disposal of the vessels during said period unless the purchaser is willing to acquire the ship operating agreement as well as the chartering agreement concluded with Peter Döhle Schiffahrts-KG, or to conclude these agreements at the same conditions anew, and the purchaser imposes this assumption obligation upon potential legal successors. Any decision made on the disposal of the vessels after this period of 10 years is subject to the approval of the service company, HCI Concept GmbH & Co. KG. HCI Concept GmbH & Co. KG has to withhold its approval if the provisions with respect to a purchase option in favor of HAMMONIA Reederei GmbH & Co. KG have not been observed or if the minimum sale price to be determined by the decision is below the current market value. As managing limited partner of 11 single-ship limited partnerships, HAMMONIA Reederei GmbH & Co. KG assumes their respective management and represents them in legal transactions. For its management services, HAMMONIA Reederei GmbH & Co. KG receives a preference share in profits from the respective single-ship limited partnership. In the years of comparison, no claim to a preference share in profits was accrued. Effective 1 October 2009 HAMMONIA Reederei GmbH & Co. KG acquired the rights under a service agreement with HCI HAMMONIA SHIPPING AG from HCI Concept GmbH & Co. KG. Please refer to note (47) (b) for details of the service agreement. (d) Relationships with ATLANTIC Gesellschaft zur Vermittlung internationaler Beteiligungen mbh & Co. KG In the years of comparison there were the following business relationships with ATLANTIC Gesellschaft zur Vermittlung internationaler Beteiligungen mbh & Co. KG and its affiliates: Statement of financial position (in EUR 000) 31/12/ /12/2010 Receivables 79 0 Liabilities Income statement (in EUR 000) 31/12/ /12/2010 Other operating expenses (escrow fee) 43 0 (e) Related persons Statement of financial position (in EUR 000) 31/12/ /12/2010 Liabilities to corporate bodies of the HCI HAMMONIA SHIPPING Group 15 5 Income statement (in EUR 000) 31/12/ /12/2010 Other operating expenses HCI Hammonia Shipping AG Annual Report 2011

83 Members of the Supervisory Board receive a fixed annual compensation of EUR 5, each in accordance with the articles of incorporation. The chairman of the Supervisory Board receives one and a half times this amount. In addition, the members of the Supervisory Board are reimbursed for expenses incurred in connection with Supervisory Board activity as well as for sales tax on Supervisory Board compensation. The total remuneration paid to members of the Supervisory Board for financial year 2011 amounts to EUR 18k (previous year: EUR 18k). The Management Board did not receive any remuneration in financial years 2011 and Moreover, above-mentioned persons were neither granted advances nor loans, nor did contingencies exist in favor of these persons. (48) Acquisition of subsidiaries (a) Acquired subsidiaries The Group signed agreements on the acquisition of controlling interests in two companies at the end of 2011 and at the beginning of 2012, respectively. The purchase agreements are subject to various conditions precedent. The conditions were fulfilled effective 10 February As of the time of presentation of the consolidated financial statements, the documentation required for a first-time consolidation were not completely available yet. In particular, available were only preliminary unaudited annual financial statements for FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG as of 31 December IFRS financial statements of the company as of the acquisition date were not available yet to the Group as of the time of preparation of the consolidated financial statements. Fair values of the assets and liabilities assumed at the time of the acqusition of the entity could therefore only be estimated for the following disclosures. The following disclosures are therefore to be considered altogether preliminary. Particularly preliminary is the determination of a negative difference from the first-time consolidation of FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG. For Verwaltung FHH Fonds Nr. 40 MS Antofagasta GmbH, no current financial statements were available as of the time of preparation of the consolidated financial statements. The acquisition relates to the following companies: Acquired subsidiaries FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG Verwaltung FHH Fonds Nr. 40 MS Antofagasta GmbH Main activity Date of acquisition Acquired interest Acquisition cost in EUR 000 Operation of a container vessel 10/02/ % 5,780 Assumption of general partner position 10/02/ % 28 In FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG, the Group acquired a limited partner s interest in the amount of EUR 7,429k of the limited liability capital altogether amounting to EUR 14,500k. With respect to the general partner, the Group acquired the equity of EUR 25k in the full amount. The controlling interests in FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG and its general partner were acquired with the objective of expanding the Group s activities with regard to container shipping. Consolidated Financial Statements 79

84 (b) Transferred consideration For the acquisition of the subsidiaries the following considerations were transferred: Transferred consideration FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG Verwaltung FHH Fonds Nr. 40 MS Antofagasta GmbH Cash and cash equivalents Plus conversion of a liability into limited liability capital 5,367 0 Total 5, Within the scope of the issue of a profit participation right against contributions in kind, HCI HAMMONIA SHIPPING AG had assumed a loan from a credit institution in the nominal amount of EUR 5,367k (fair value equals nominal value) of 31 December 2011 for the preliminary financing of the equity of FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG yet to be placed. Effective 10 February 2012, the loan was converted into limited liability capital (debt-to-equity swap). Transaction costs in the amount of approx. EUR 200k were excluded from the transferred consideration and will be charged to expenses in the financial year 2012, to be reported as part of other operating expenses in the consolidated income statement for the year (c) Acquired assets and liabilities The following table shows the acquired assets and liabilities recognized as of acquisition date: in EUR 000 FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG Assets Property, plant and equipment 26,682 Investments 1 Inventories 184 Trade receivables 482 Other current assets 102 Cash and cash equivalents 1,321 Liabilities Financial liabilities -20,960 Provisions -756 Tax liabilities -98 Trade payables -248 Other liabilities -404 (d) Non-controlling interests The non-controlling interests (48.77 % of the limited partner s share in FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG) were recognized as of the date of acquisition and measured at EUR 87k with reference to the fair value. The measurement of the non-controlling interests follows the amount of their share in the net assets fair value. The noncontrolling interests are included as borrowed capital under the item Non-controlling interests in equity. 6, HCI Hammonia Shipping AG Annual Report 2011

85 (e) Negative difference due to the acquisition The negative difference resulting from the acquisition is determined as follows: in EUR 000 FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG Transferred consideration 5,580 Plus non-controlling interests (48.77 %) -87 Less fair value of identified acquired net assets -6,306 Negative difference due to the acquisition -813 The negative difference resulting from the acquisition of the interest in FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG was subjected to a reassessment and will be recognized as income in financial year 2012 (item Other operating income ). As the disclosures are preliminary, the amount of the negative difference arising from the acquisition may still change in the context of the first-time consolidation. The difference to be recognized as income of the 2012 financial year arises as the fair values of the acquired assets are below their previous carrying amounts. (f) Net cash outflow due to the acquisition The following net cash inflow resulted from the acquisition of the two subsidiaries: in EUR 000 FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG Consideration paid in cash 213 Less acquired cash and cash equivalents -1,321 Net cash inflow due to the acquisition -1,108 (g) Effect of the acquisition on the Group s earnings If the business combination had taken place as of 1 January 2011, the Group s revenues would have come to roughly EUR 73 million and the consolidated net income for the period would have been about EUR 0.1 million. In determining the Group s pro forma revenues and pro forma net income under the assumption that FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG would have been acquired at the beginning of the reporting period, management eliminated organization cost (placement fees, etc.) incurred by FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG as one-off costs and recognized depreciation of the acquired seagoing vessel on the basis of fair value determined as of first-time recognition of the business combination, rather than based on the carrying amount recognized in the financial statements prior to the acquisition and based on useful lives applied in the Group. (49) Company boards (a) Management Board The following were appointed members of the Company s Management Board in the financial year: Dr Karsten Liebing, managing director of HAMMONIA Reederei GmbH & Co. KG, Hamburg Jan Krutemeier, managing director of HCI Concept GmbH & Co. KG, Hamburg Consolidated Financial Statements 81

86 (b) Supervisory Board The Supervisory Board consists of the following members: Werner Berg, managing director of AKTIVA Beteiligungs- und Verwaltungs-GmbH, Berlin and of PROKURATOR GmbH, Berlin (chairman) Michael Hummel, head of capital investments, Sparkasse Vogtland, Auerbach (deputy chairman) Andreas Uibeleisen, bank manager, KfW (ret.), Bad Homburg Werner Berg is a member of the supervisory boards of the following companies: LUWAG Leben und Wohnen AG, Berlin (chairman) Werner Berg is a member of the advisory boards of the following companies: CENTRO PARK KG KAWI Grundstücksverwaltungs-GmbH & Co. (chairman) Schiffahrtsgesellschaft HANSA CENTAUR mbh & Co. KG (chairman) CTO Gesellschaft für Containertransport mbh & Co. KG MS NAUPLIUS (chairman) CTO Gesellschaft für Containertransport mbh & Co. KG MS TEGESOS (chairman) CTO Gesellschaft für Containertransport mbh & Co. KG MS CHAMPION (chairman) Beteiligungs-Kommanditgesellschaft MS BUXHANSA Verwaltungs- und Bereederungs GmbH & Co. Beteiligungs-Kommanditgesellschaft MS BUXFAVOURITE Verwaltungs- und Bereederungs GmbH & Co. Beteiligungs-Kommanditgesellschaft MS BRÜSSEL Verwaltungs- und Bereederungs GmbH & Co. Beteiligungsgesellschaft LARENTIA + MINERVA mbh & Co. KG (chairman) mt BEATRICE GmbH & Co. KG MS E. R. SEOUL Schiffahrtsgesellschaft mbh & Co. KG (chairman) MS E. R. SHENZHEN Schiffahrtsgesellschaft mbh & Co. KG (chairman) MS E. R. YANTIAN Schiffahrtsgesellschaft mbh & Co. KG (chairman) MS E. R. LONG BEACH Schiffahrtsgesellschaft mbh & Co. KG MS E. R. TIANSHAN Schiffahrtsgesellschaft mbh & Co. KG MS E. R. TEXAS Schiffahrtsgesellschaft mbh & Co. KG Reederei MS E. R. LOS ANGELES Beteiligungsgesellschaft mbh & Co. KG (chairman) Reederei MS E. R. SWEDEN Beteiligungsgesellschaft mbh & Co. KG 82 HCI Hammonia Shipping AG Annual Report 2011

87 Reederei MS E. R. LONDON Beteiligungsgesellschaft mbh & Co. KG Schiffsportfolio Global 1 (chairman) Schiffsportfolio Global 2 (chairman) nordcapital Offshore Fonds 1 MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG (chairman) Michael Hummel is a member of the administrative boards or advisory boards of the following companies: Sparkasse Vogtland MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG Andreas Uibeleisen is a member of the advisory boards or administrative boards of the following companies: Schiffahrtsgesellschaft Wappen von Frankfurt mbh & Co.KG Reederei MS Reinbek GmbH & Co.KG Conti 7.Beteiligungsfonds GmbH & Co.KG Conti 2.Container Schiffahrts-GmbH & Co.KG MS Conti Taipeh Conti 174. Schiffahrts-GmbH & Co. Bulker KG MS Conti Almandin HCI Shipping Select XVIII HCI Hammonia I GmbH & Co. KG MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG Conti 23. Container Schiffahrts-GmbH & Co.KG MS Conti Chivalry Conti 17. Container Schiffahrts-GmbH & Co. KG MS Conti Conquest (50) Audit fees The total fees of the auditor HANSA PARTNER GmbH Wirtschaftsprüfungsgesellschaft, Hamburg, can be broken down as follows: in EUR Auditing services Other certification services Tax consultancy services 0 0 Other services 0 0 Total Consolidated Financial Statements 83

88 The disclosure of auditing services for financial year 2011 (2010) includes EUR 5k (EUR 6k) for the prior-year audit. Other certification services relate to the reviews of the consolidated financial statements as of 30 June 2011 and 30 June 2010, respectively. (51) Corporate Governance Code Management Board and Supervisory Board of HCI HAMMONIA SHIPPING AG declare that the recommendations of the Government Commission German Corporate Governance Code have with few exceptions been complied with and will be complied with in the future. The declaration of compliance stipulated under Section 161 AktG (German Stock Corporation Act) was released by the Management Board and the Supervisory Board on 8 December 2011 and made permanently available to the shareholders on the Web site of HCI HAMMONIA SHIPPING AG at % pdf. (52) Disclosures of shareholdings in accordance with Sections 21 et seq. WpHG As of the preparation of the consolidated financial statements, HCI HAMMONIA SHIPPING AG had received the following notifications of reportable shareholdings pursuant to Section 21 WpHG (German Securities Trading Act): Shareholder Debeka Lebensversicherungsverein a.g., Koblenz, Germany Debeka Krankenversicherungsverein a.g., Koblenz, Germany Sparkasse Singen-Radolfzell, Singen, Germany Deutscher Ring Lebensversicherungs-AG, Hamburg, Germany Deutsche Ring Krankenversicherungsverein a.g., Hamburg, Germany HAMMONIA Reederei GmbH & Co. KG, Hamburg, Germany Döhle ICL Beteiligungsgesellschaft mbh, Hamburg, Germany Peter Döhle Schiffahrts-KG, Hamburg, Germany Release date Transaction (threshold in %) New share in voting rights in % 04/12/ % threshold exceeded 6,66 % 04/12/ % threshold exceeded 6.66 % 05/12/ % threshold exceeded 3.33 % 06/12/ % threshold exceeded % 06/12/ % threshold exceeded % 06/12/ % threshold exceeded 9.86 % (Voting rights held by HSH Nordbank AG, Hamburg, Germany are attributable to HAMMONIA Reederei GmbH & Co. KG in accordance with Section 22 (1) sentence 1 no. 2 and no. 6 WpHG) 06/12/ % threshold exceeded 3.33 % 06/12/ % threshold exceeded % (thereof 3.33 % attributable from Döhle ICL Beteiligungsgesellschaft mbh, Hamburg, Germany in accordance with Section 22 (1) sentence 1 no. 1 WpHG in which Peter Döhle Schiffahrts-KG, Hamburg, Germany holds a 100 % interest; another 9.86 % attributable from HSH Nordbank AG, Hamburg, Germany in accordance with Section 22 (1) sentence 1 no. 2 and no. 6 in conjunction with sentence 2 WpHG) 84 HCI Hammonia Shipping AG Annual Report 2011

89 Beteiligungs- und Verwaltungsgesellschaft Peter Döhle mbh, Hamburg, Germany 06/12/ % threshold exceeded Mr. Jochen Döhle, Germany 06/12/ % threshold exceeded Ärzteversorgung Westfalen-Lippe, Münster, Germany Internationale Kapitalanlagegesellschaft, Düsseldorf, Germany Norddeutsche Landesbank Girozentrale, Hannover, Germany Sparkasse Vogtland, Plauen, Germany Sachsen-Finanzgruppe, Leipzig, Germany HSH Nordbank AG, Hamburg, Germany Free and Hanseatic City of Hamburg, Germany Federal State of Schleswig-Holstein, Kiel, Germany % (thereof 3.33 % attributable from Döhle ICL Beteiligungsgesellschaft mbh, Hamburg, Germany in accordance with Section 22 (1) sentence 1 no. 1 WpHG in which Peter Döhle Schiffahrts-KG, Hamburg, Germany holds a 100 % interest; another 9.86 % attributable from HSH Nordbank AG, Hamburg, Germany in accordance with Section 22 (1) sentence 1 no. 2 and no. 6 in conjunction with sentence 2 WpHG) Peter Döhle Schiffahrts-KG, Hamburg, Germany whose managing partner is Beteiligungs- und Verwaltungsgesellschaft Peter Döhle mbh, holds a 100 % interest; another 9.86 % attributable from HSH Nordbank AG, Hamburg, Germany in accordance with Section 22 (1) sentence 1 no. 2 and no. 6 in conjunction with sentence 2 WpHG) % (thereof 3.33 % attributable from Döhle ICL Beteiligungsgesellschaft mbh, Hamburg, Germany in accordance with Section 22 (1) sentence 1 no. 1 WpHG in which Peter Döhle Schiffahrts- KG, Hamburg, Germany holds a 100 % interest while Mr. Jochen Döhle holds a 100 % interest in the managing partner of Peter Döhle Schiffahrts-KG, Beteiligungsund Verwaltungsgesellschaft Peter Döhle mbh, Hamburg, Germany; another 9.86 % attributable from HSH Nordbank AG, Hamburg, Germany in accordance with Section 22 (1) sentence 1 no. 2 and no. 6 in conjunction with sentence 2 WpHG) 21/01/ % threshold exceeded 3.67 % (thereof 3.67 % attributable through Ferrum Pension Management S.a.r.l. in accordance with Section 22 (1) sentence 1 no. 2 WpHG) 10/10/ % threshold exceeded 12/02/ % threshold undercut % (thereof % attribuatble through Ärzteversorgung Westfalen-Lippe) % 20/06/ % threshold exceeded 3.30 % 18/03/ % threshold exceeded 3.30 % (thereof 3.30 % attributable through Sparkasse Vogtland in accordance with Section 22 (1) sentence 1 no. 1 WpHG) 07/08/ % threshold % undercut 01/07/ %, 5 %, 10 % and 15 % thresholds exceeded 02/07/ %, 5 %, 10 % and 15 % thresholds exceeded % (thereof attributable all voting rights held by HSH Finanzfonds AöR (parent of HSH Nordbank AG) - HSH Nordbank AG in accordance with Section 22 (1) sentence 1 no. 1, (3) WpHG) % (thereof attributable all voting rights held by HSH Finanzfonds AöR (parent of HSH Nordbank AG) - HSH Nordbank AG in accordance with Section 22 (1) sentence 1 no. 1, (3) WpHG) Consolidated Financial Statements 85

90 HSH Finanzfonds AöR, Hamburg, Germany Sparkasse Hildesheim, Hildesheim, Germany Sparkassenzweckverband Hildesheim, Hildesheim, Germany Helaba Invest Kapitalanlagegesellschaft mbh, Frankfurt, Germany Universal-Investment-Gesellschaft mbh, Frankfurt/Main, Germany 02/07/ %, 5 %, 10 % and 15 % thresholds exceeded % (thereof attributable all voting rights held by HSH Finanzfonds AöR (parent of HSH Nordbank AG) - HSH Nordbank AG in accordance with Section 22 (1) sentence 1 no. 1, (3) WpHG) 27/04/ % threshold exceeded 3.30 % 20/07/ % threshold exceeded 3.30 % (thereof 3.30 % attributable through Sparkasse Hildesheim in accordance with Section 22 (1) sentence 1 no. 1 WpHG) 29/06/ % threshold undercut 06/10/ % threshold undercut 4.54 % (thereof 4.54 % attributable in accordance with Section 22 (1) sentence 1 no. 6 WpHG: voting rights held by Sparkasse Hildesheim) 0 % No further notifications were received by the company. (53) Subsequent events Effective 19 February 2012 HCI HAMMONIA SHIPPING AG acquired controlling interests in FHH Fonds Nr. 40 MS Antofagasta GmbH & Co. KG and its general partner Verwaltung FHH Fonds Nr. 40 MS Antofagasta GmbH. For further information please refer to note (47). (54) Exemption pursuant to Section 264b HGB The exemption provided under Section 264b HGB (German Commercial Code) with respect to the disclosure of financial statements has been made use of for the following consolidated subsidiaries: MS HAMMONIA TEUTONICA Schiffahrts GmbH & Co. KG MS HAMMONIA ROMA Schiffahrts GmbH & Co. KG MS HAMMONIA MASSILIA Schiffahrts GmbH & Co. KG MS HAMMONIA HOLSATIA Schiffahrts GmbH & Co. KG MS HAMMONIA POMERENIA Schiffahrts GmbH & Co. KG MS HAMMONIA BAVARIA Schiffahrts GmbH & Co. KG MS WESTPHALIA Schiffahrts GmbH & Co. KG MS SAXONIA Schiffahrts GmbH & Co. KG MS HAMMONIA FIONIA Schiffahrts GmbH & Co. KG MS HAMMONIA HAFNIA Schiffahrts GmbH & Co. KG MS HAMMONIA DANIA Schiffahrts GmbH & Co. KG MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG 86 HCI Hammonia Shipping AG Annual Report 2011

91 (55) Statement of share ownership in accordance with Section 313 (2) to (4) HGB The statement of share ownership of HCI HAMMONIA SHIPPING AG and the Group as of 31 December 2011 is published in the electronic Federal Gazette (elektronischer Bundesanzeiger) in accordance with Sections 287, 313 HGB (German Commercial Code). The consolidated financial statements were prepared by the Management Board on 17 April 2012 and thus released to be submitted to the Supervisory Board. The consolidated financial statements will be submitted to the Supervisory Board for approval at the Supervisory Board meeting held on 25 April Hamburg, 17 April 2012 HCI HAMMONIA SHIPPING AG Dr Karsten Liebing Management Board Jan Krutemeier management Board Responsibility statement We assure that, to the best of our knowledge and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the profit/loss, financial position and assets and liabilities of the Group, and the consolidated management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the Group s probable development. Hamburg, 17 April 2012 HCI HAMMONIA SHIPPING AG Dr Karsten Liebing Management Board Jan Krutemeier management Board Consolidated Financial Statements 87

92 5. Seperate financial statements of HAMMONIA SHIPPING AG Income statement EUR Revenues 132, , Other operating income 703, ,487, Depreciation and amortization of intangible assets property, plant and equipment , Other operating expenses 2,179, ,411, Income from investments 6,096, ,785, Other interest income and similar income 77, , Depreciation on investments 323, , Net income 4,507, ,210, Profit carry-forward 11,306, , Income from capital decrease ,772, Allocation to capital reserve according to the rules on simplified capital stock decrease ,772, Retained earnings 15,814, ,306, HCI Hammonia Shipping AG Annual Report 2011

93 Statement of financial position Assets EUR 31/12/ /12/2010 A. Non-current assets I. Intangible assets Licenses, industrial property rights and similar rights and assets as well as licenses to such rights and assets II. Financial assets 1. Investments in affiliated companies 164,050, ,467, Other loans 5,367, ,417, B. Current assets I. Receivables and other assets 1. Receivables from affiliated companies 5,601, ,639, Other assets 912, ,513, , II. Balances at banks 4,785, , C. Accruals and deferrals 23, ,079, ,741, ,197, Equity and Liabilities EUR 31/12/ /12/2010 A. Equity I. Subscribed capital 13,641, ,641, II. Capital reserve 136,409, ,409, III. Surplus reserves Statutory reserve 5, , IV. Retained earnings 15,814, ,306, ,870, ,362, B. Provisions Other provisions 133, , C. Liabilities 1. Liabilities to banks 334, Profit participation capital 13,250, ,450, Trade payables 237, , Other liabilities 915, ,737, , ,741, ,197, Annual Financial Statements 89

94 Development of non-current assets Acquisition and production cost EUR 01/01/2011 Additions Disposals 31/12/2011 I. Intangible assets Licenses, industrial property rights and similar rights and assets as well as licenses to such rights and assets 14, , II. Financial assets 1. Investments in affiliated companies 152,467, ,736, ,152, ,050, Other loans ,367, ,367, ,467, ,103, ,152, ,417, ,481, ,103, ,167, ,417, Accumulated depreciation and amortization EUR 01/01/2011 Additions Disposals Right-ups 31/12/2011 I. Intangible assets Licenses, industrial property rights and similar rights and assets as well as licenses to such rights and assets 14, , II. Financial assets 1. Investments in affiliated companies Other loans , , Carrying amount EUR 31/12/ /12/2011 I. Intangible assets Licenses, industrial property rights and similar rights and assets as well as licenses to such rights and assets II. Financial assets 1. Investments in affiliated companies 152,467, ,050, Other loans ,367, ,467, ,417, ,467, ,417, HCI Hammonia Shipping AG Annual Report 2011

95 Statement of share property as of 31 December 2011 Registered officce Equity in EUR Interest- % Result 2011 EUR MS HAMMONIA POMERENIA Schiffahrts GmbH & Co. KG Hamburg 11,385, % -558, MS SAXONIA Schiffahrts GmbH & Co. KG Hamburg 10,345, % -577, MS WESTPHALIA Schiffahrts GmbH & Co. KG Hamburg 11,558, % -205, MS HAMMONIA ROMA Schiffahrtsgesellschaft mbh + Co. KG Hamburg 9,779, % -815, MS HAMMONIA HOLSATIA Schiffahrtsgesellschaft mbh + Co. KG Hamburg 9,209, % -773, MS HAMMONIA TEUTONICA Schiffahrtsgesellschaft mbh + Co. KG Hamburg 9,077, % -924, MS HAMMONIA MASSILIA Schiffahrtsgesellschaft mbh + Co. KG Hamburg 10,333, % -592, MS HAMMONIA BAVARIA Schiffahrts-GmbH + Co. KG Hamburg 11,221, % -612, MS HAMMONIA FIONIA Schiffahrts-GmbH + Co. KG Hamburg 19,950, % 1,606, MS HAMMONIA HAFNIA Schiffahrts-GmbH + Co. KG Hamburg 21,549, % 2,465, MS HAMMONIA DANIA Schiffahrts-GmbH + Co. KG Hamburg 21,033, % 1,610, MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG Hamburg 12,951, % 1,273, Verwaltung HCI HAMMONIA Schiffahrts GmbH Hamburg 114, % 24, Verwaltung MS HAMMONIA PESCARA GmbH Hamburg 369, % 323, Annual Financial Statements 91

96 6. Supervisory Board report Dear shareholders, with the investment in the shipping company MS HAMMONIA PESCARA Schiffahrts GmbH & Co. KG as of the end of the year 2010, the fleet of HCI HAMMONIA SHIPPING AG now consists of twelve vessels. These generate a stable cash flow through existing medium to long-term charter agreements or rather operation in revenue pools. The performance of the container shipping market was altogether uneven in the year After considerable manifestations of recovery over the first half-year, another slowdown in the container shipping market set in from mid-june This phase has continued through the beginning of the year The Management continued to hold negotiations with banks on the possible acquisition of further ship investments in fiscal year In this context, profit participation rights were issued in the amount of EUR 5.8 million at the end of December 2011 for tying up another container vessel. This transaction relates to a majority interest in a shipping company owning a 2,872 TEU container ship delivered in the year Thus the fleet of HCI HAMMONIA SHIPPING AG has consisted of 13 ships since mid-february. In the Supervisory Board meeting of 8 December 2012, the Management Board s current members were appointed for another term of five years. Their respective terms of employment end on 17 February The Supervisory Board consists of the three members Werner Berg (chairman), Michael Hummel, and Andreas Uibeleisen. The Supervisory Board advised the Management Board with regard to all issues of relevance and supervised its governance of the company in fiscal year The Supervisory Board informed itself promptly and comprehensively about the company s economic development and financial position. Management Board and Supervisory Board discussed the corporate planning for the medium term together. The chairman of the Supervisory Board continuously maintained close contact with the Management Board even outside the regular sessions. The Supervisory Board convened in four meetings in the past fiscal year. The key issues debated in these meetings were: Adoption of the financial statements and the management report as well as the consolidated financial statements and the consolidated management report for the year 2010; adoption of the interim financial statements for the first half-year 2011; resolution on the objectives of the Supervisory Board in respect of its future composition the subsidiaries risk management; following the market developments in the shipping markets and assessing the effects on the company; 92 HCI Hammonia Shipping AG Annual Report 2011

97 discussion of a dividend distribution for the fiscal year 2010; preparation and performance of the Annual General Meeting 2011 and its resolution proposals; discussion of potential future capital market transactions review and approval of the issue of profit participation rights for the investment in a shipping company issues of corporate governance and release of a joint declaration of compliance in accordance with Section 161 AktG (German Stock Corporation Act) together with the Management Board; budget planning for the years 2011 and 2012 reappointment of the Management Board members for another five-year term. HANSA PARTNER GmbH Wirtschaftsprüfungsgesellschaft, Kehrwieder 11, Hamburg, was elected auditor and Group auditor for fiscal year 2011 by resolution of the Annual General Meeting. The auditing firm audited the financial statements and the management report of HCI HAMMONIA SHIPPING AG as of 31 December 2011 according to HGB as well as the consolidated financial statements and the consolidated management report as of 31 December 2011 according to IFRS/IAS including respective accounting and issued an unqualified audit opinion. The Supervisory Board approved the result of the audit and the auditing firm s issue of the audit opinion, and it approved of the audit reports on the financial statements and consolidated financial statements. In its meeting of 25 April 2012, the Supervisory Board approved the financial statements and consolidated financial statements as of 31 December 2011 prepared by the Management Board for HCI HAMMONIA SHIPPING AG and the Group. The annual financial statements were thus deemed adopted. The Supervisory Board thanks the Management Board and everyone else involved in supporting the company with their commitment in the year Hamburg, 25. April 2012 Werner Berg Chairman of the Supervisory Board Supervisory Board Report 93

98 Financial calendar 30/04/2012 Release of the annual report /05/2012 Release of the interim financial report for the 1 st quarter /06/2012 Annual General Meeting 30/08/2012 Release of the half-year report /11/2012 Release of the interim financial report for the 3 rd quarter 2012 Contact HCI HAMMONIA SHIPPING AG Burchardstraße 8 D Hamburg Fon: +49 (0) Fax: +49 (0) kontakt@hci-hammonia-shipping.de Imprint Published by: HCI HAMMONIA SHIPPING AG Burchardstraße 8 D Hamburg Concept and Compilation: PvF Investor Relations Hauptstraße Eschborn Design: HCI HAMMONIA SHIPPING AG Burchardstraße 8 D Hamburg Printing and Processing: Druck- und Verlagshaus FROMM GmbH & Co. KG Breiter Gang D Osnabrück Our Annual Report is published in English and German. HCI HAMMONIA SHIPPING AG, 2012 Disclaimer Clarkson Research Servcies Limited Clarkson Research Services Limited (CRSL) have not reviewed the context of any of the statistics or information contained in the commentaries and all statistics and information were obtained by HCI HAMMONIA SHIPPING AG from standard CRSL published sources. Furthermore, CRSL have not carried out any form of due diligence exercise on the information, as would be the case with finance raising documentation such as Initial Public Offering (IPOs) or Bond Placements. Therefore reliance on the statistics and information contained within the commentaries will be for the risk of the party relying on the information and CRSL does not accept any liability whatsoever for relying on the statistics or information. 94 HCI Hammonia Shipping AG Annual Report 2011

99 Financial Calendar Contact Imprint 95