HCI HAMMONIA SHIPPING AG Annual Report 2010 AG Annual Report 2010 SHIPPING HAMMONIA HCI

Transcription

1 hci hammonia shipping ag Annual Report 2010

2 HCI HAMMONIA SHIPPING AG Annual Report 2010 Basic data Ship portfolio Vessel Date of acquisition Capacity in TEU Year of construction MS SAXONIA 03 / 12 / , MS WESTPHALIA 03 / 12 / , MS HAMMONIA POMERENIA 29 / 11 / , MS HAMMONIA FIONIA 29 / 04 / , MS HAMMONIA DANIA 06 / 05 / , MS HAMMONIA HAFNIA 16 / 05 / , MS HAMMONIA HOLSATIA 21 / 05 / , MS HAMMONIA TEUTONICA 06 / 06 / , MS HAMMONIA MASSILIA 20 / 10 / , MS HAMMONIA ROMA 05 / 01 / , MS HAMMONIA BAVARIA 05 / 01 / , MS BENJAMIN SCHULTE 29 / 12 / , Key financial indicators EUR Change in % Vessel operating result 32,471 42,639 40,929-4 Result from shipping operations 30,483 40,583 43,575 7 Earnings before interest and taxes (EBIT) 16,844 13,449 21, net income for the period 9,478-2,752 4, Cash flow from operating activities 24,989 22,457 29, Cash flow from investing activities -314,901-52,252 1, Earnings per share EUR 69 EUR -20 EUR 35 -

3 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Amanda 1,700 TEU container ship of the Peter Döhle fleet

4 HCI HAMMONIA SHIPPING AG Annual Report 2010 Contents Short Portrait... 1 Welcome Address...2 The Company...4 Business objectives and strategy... 4 Business model... 5 The share... 6 Management Report...8 Key business conditions and general framework... 8 Profit and loss, financial position and assets and liabilities of the Group (according to IFRS)...12 Non-financial performance indicators...15 Subsequent events...15 Risks and opportunities...16 Outlook...18 Basics of the remuneration system...22 Profit and loss, financial position and assets and liabilities of the holding company HCI HAMMONIA SHIPPING AG...22 Reporting in accordance with Sections 289 (4), 315 (4) HGB...24 Statement on corporate governance...25 Corporate governance report...26 Financial Statements...32 income statement...32 Statement of comprehensive income...32 statement of financial position...33 statement of cash flows...34 statement of changes in equity...35 statement of changes in non-current assets...36 Notes to the consolidated financial statements...40 Responsibility statement...91 Auditor s Report...92 Annual Financial Statements of HAMMONIA SHIPPING AG...94 Supervisory Board Report...98 Financial Calendar / Contact / Imprint

5 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 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 twelve container vessels by the end of the year In addition to the previous eleven vessels of the 2,500, 3,100 and 7,800 TEU classes, a majority interest of 56 % in a 4,250 TEU vessel was acquired in December 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 in turn the owners of the respective vessels. HCI HAMMONIA SHIP- PING 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 SHIP- PING 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 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 currently difficult environment for closed-end ship funds opportunities open up for acquiring ships at favorable conditions. This strategy has been successfully pursued already in connection with the acquisition of the majority interest in MS BENJAMIN SCHULTE and it will be continued. 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. 1

6 HCI HAMMONIA SHIPPING AG Annual Report _Welcome Address Dear shareholders and business associates, The market disruptions of the past two years can be regarded as one of the historically greatest challenges in the rather short history of container shipping. After the real estate crisis in the U.S.A. and the resulting global financial crisis had led to a drastic slump in consumption worldwide, the demand for container transport capacity dropped by roughly 9 % in the year In view of large overcapacities in the market the industry had known only two-digit growth rates since 2002 and planned corresponding shipping capacity which was not met by sufficient cargo in this situation the cargo rates went down considerably. As the large container liner shipping companies could not adjust their costs fast enough, they collectively generated losses of roughly USD 15 billion in the year The liner shipping companies responded by bringing about a swift capacity shortage by initially taking own units out of operation. They were then replaced in the course of the year by returns of chartered ships. At the same time, liner services provided by competing suppliers were combined in order to achieve savings in fuels and operating costs per container by using larger ships. By the end of 2009, about 12 % of the container vessels or 1.5 million TEU were out of operation as a consequence; 65 % of those ships were the property of charter owners or leasing companies with predominantly small and medium-sized units. This scenario had the result that new closings for charters were made at marginal costs, i.e. operating costs. For a 2,500 TEU ship this meant for instance charter rates of roughly USD 4,500 a day over a term of twelve months. In the meantime the markets have recovered. Transport demand rose by more than 10 % in the year The liner shipping companies almost managed to compensate for the entire losses. The ratio of ships out of operation has gone down to about 2 % or less than 0.3 million TEU within twelve months. Charter rates have between doubled and quadrupled, depending on ship size, yet they are still below the long-term average amounts for the most part. Your company mastered this challenge because of its conservative positioning. Due to the balanced operation mix made up of time charters and pool operation the 2,500 TEU pool for example generated average charter rates of roughly USD 14,500 a day over the years 2009 and 2010, a cash flow was generated that, together with the cautiously planned liquidity reserve, guaranteed the coverage of operating and financing costs at any time. Moreover, the company did not have to finance speculative new ship constructions, unlike some U.S. listed competitors. In the years 2009 and 2010 additional liquidity relief was created together with the banks financing the 2,500 and 3,100 TEU ships as well by the option of repayment deferments. Owing to the constructive approach of the banks, oriented towards safeguarding the company s long-term solvency, the arrangement of conditions with respect to the repayment deferments will not sustainably affect the company s liquidity and ability to grow. Particularly worth mentioning in this context is China Export Import Bank (CEXIM), apart from KfW IPEX-Bank and Nord/LB. The contribution made by the shareholders by not claiming a dividend for the year 2009 was a substantial aid in the negotiations with the banks as it clearly evidenced the willingness to share the burdens. The satisfying result for 2010 reflects the solid positioning of the company and its partners. Furthermore, two positive special items contributed to this result: Various crisis-ridden liner shipping companies were successfully supported by temporary charter reductions, with the decisive contribution of the pool manager, Peter Döhle Schiffahrts-KG. At the end of 2010 these temporary reductions were made up for prematurely by the favorably timed sale of the shares given to the pools as charter surrogate by these liner shipping companies. Moreover, due to the sustained market recovery, impairment losses on ships recognized in the year 2009 could partially be reversed again. 2

7 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint The future prospects are determined by an improvement of the ratio of supply and demand with regard to shipping tonnage. On the supply side, the situation is affected by the close to two-year break in respect of new orders so that the ratio of order book and existing fleet of container vessels has dropped again from above 60 % to about 27 %. As the orders still to be delivered focus on the very large Post-Panamax vessels, a shortage of supply can definitely be expected in the smaller segments up to 4,000 TEU. On the demand side, we generally anticipate the recovery to continue at a lower level. However, the risks of the oil price shock due to the political upheavals in the Middle East and risks for the financial market due to the burdens of the Japanese economy must be kept track of with the acquisition of a majority interest in a shipping company that operates a modern 4,250 TEU vessel under a binding charter agreement. The situation of that company, in particular expiring bridge financing for fund capital to be raised, made it possible for HCI HAMMONIA Shipping AG to find an opportune entry and attractive refinancing so that a more than risk-adequate return on the invested capital in the low two-digit figures can be expected in view of the ship s good terms of operation. Hamburg, 11 April 2011 Due to the corporate actions resolved in the year 2010, the company is prepared well to participate in a continuing recovery and consolidation of the market. The provided capital was utilized for the first time at the end of the year Dr Karsten Liebing Management Board Jan Krutemeier Management Board Dr Karsten Liebing Management Board Jan Krutemeier Management Board 3

8 HCI HAMMONIA SHIPPING AG Annual Report _The Company 2_1 Business objectives and strategy Attractive return on our shareholders investment 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-todate 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 supplier 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 annual growth rates of more than 10 %. 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, roughly 98 % 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 economy recovered faster than expected in the year 2010 and keeps its course for growth if somewhat slowed down. 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 evolving in maritime trade that involve large container ports of transshipment (so-called hubs), being 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 in 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 the service company, 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 30 % equity and 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

9 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 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 trade was about 9 % in the period from 1985 to After the collapse of global container turnover in the year 2009, a growth of about 12 % is expected for the year 2010 already. Corporate structure, ship portfolio and management The ship portfolio currently comprises twelve container ships of the classes Sub-Panamax, Panamax, and Post- Panamax with a total capacity of 49,145 TEU. The six ships of the Sub-Panamax class are used on Far Eastern routes and on the North-South routes in America. The Panamax ships WESTPHALIA and SAXONIA also service the Far Eastern routes, MS BENJAMIN SCHULTE has been used for transatlantic crossings and routes in the Mediterranean routes and the Persian Gulf, and the three Post-Panamax ships run on East-West routes between Asia and Europe as well as the North America s East Coast. The ships are operated 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 state 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 income from the sale and purchase of ships. Structure of HCI HAMMONIA SHIPPING AG, 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 3,100 TEU MS SAXONIA & MS WESTPHALIA 4,250 TEU MS BENJAMIN SCHULTE 7,800 TEU MS HAMMONIA Fionia MS HAMMONIA Hafnia MS HAMMONIA Dania Operation PD 2,500 pool altogether 55 ships PD 3,100 pool altogether 16 ships 5-year time charter with UASC 10-year time charter with Maersk 5

10 HCI HAMMONIA SHIPPING AG Annual Report _3 The share In the year 2010 the global stock markets recovered from the price losses suffered in the previous year on a broad scale. Cases in point, the MSCI World Index gained about 17 % in the year 2010, the DAX went up by some 11 %, and the shipping industry s reference index ShipInx gained roughly 46 %. The positive performance of the ShipInx is particularly accounted for by the significantly improved business situation of the liner shipping companies, benefiting in the past year from the fast-growing transport volumes and the corresponding increase in cargo rates at still very favorable charter rates by historical comparison. However, the performance of the ShipInx also indicates the potential for ship owners such as HCI HAMMONIA SHIPPING AG as the charter market tends to follow the cargo markets with a certain delay. The stock price of HCI HAMMONIA SHIPPING AG recovered substantially in the year 2010 as well. After the share had reached its historical low of EUR at the beginning of the second quarter, a strong rebound set in during the remaining course of the year. The year s last recorded price of the HCI HAMMONIA SHIPPING stock of EUR , which equals the peak price of the year 2010, was about 36 % above the year s low and about 12 % above the first price recorded for the year. Relative share price development of HCI HAMMONIA SHIPPING AG compared to selected stock indices / / / / /2010 HCI HAMMONIA SHIPPING AG MSCI WORLD INDEX ShipInx 1) DAX 1) The Shiplnx index represents the performance of the 30 largest listed stocks by market capitalization in manitime trade. The base date of the ShipInx index is 20 September 2002, when the index started with 100 index points. 6

11 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Due to its division into large stakes and 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 19 % of the shares in HCI HAMMONIA SHIP- PING 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 10 % are held by asset management companies and roughly 4 % by other institutional investors. The free float amounts to 2-3 % of the shares. HCI HAMMONIA SHIPPING AG does not hold own shares. Basis data of HAMMONIA SHIPPING AG share WKN / ISIN A0MPF5 / DE000A0MPF55 Ticker symbol / Reuters / Bloomberg HHX.HAM / HHX.DE / HHX.GR Type of shares No-par common bearer shares Number of shares 136,414 Stock prices 2010 in EUR High (18/ 11 / 2010) Average Low (12/ 04 / 2010) Beginning of year (04/ 01 / 2010) Last (30 / 12 / 2010) Market capitalization (30 / 12 / 2010) EUR million 7

12 HCI HAMMONIA SHIPPING AG Annual Report _ Management Report 3_1 Key business conditions and general framework 3_1_1 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 their operation 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. With the acquisition of a majority interest in MS BENJAMIN SCHULTE Shipping GmbH & Co. KG in December 2010, HCI HAMMONIA SHIPPING AG currently has a fleet of twelve seagoing vessels in service. There are no obligations for taking over additional vessels. As the controlling Group company and the managing holding company, HCI HAMMONIA SHIPPING AG manages the individual ship investments of the respective subsidiaries. As of 31 December 2010 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 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 BENJAMIN SCHULTE Shipping GmbH & Co. KG (EUR 10,733k) Beteiligung MS BENJAMIN SCHULTE Shipping GmbH (EUR 14k) The above-mentioned investments 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. Beteiligung MS BENJAMIN SCHULTE Shipping GmbH serves as the personally liable partner (general partner) in MS BENJAMIN SCHULTE Shipping GmbH & Co. KG. Verwaltung HCI HAMMONIA Schiffahrts GmbH serves as the personally liable partner (general partner) for the other limited partnerships. 3_1_2 Business performance The fleet MS SAXONIA Schiffahrts GmbH & Co. KG MS WESTPHALIA Schiffahrts GmbH & Co. KG MS HAMMONIA POMERENIA Schiffahrts GmbH & Co. KG MS HAMMONIA HOLSATIA Schiffahrts GmbH & Co. KG MS HAMMONIA MASSILIA Schiffahrts GmbH & Co. KG MS HAMMONIA TEUTONICA Schiffahrts GmbH & Co. KG MS HAMMONIA BAVARIA Schiffahrts GmbH & Co. KG (EUR 10,226k) (EUR 10,226k) (EUR 11,126k) (EUR 11,176k) (EUR 11,326k) (EUR 11,226k) (EUR 11,726k) The fleet of HCI HAMMONIA SHIPPING AG comprises twelve modern container vessels with sizes between 2,500 and 7,800 TEU. A new addition to the fleet is MS BENJAMIN SCHULTE with a size of roughly 4,250 TEU. Since the end of the year 2010, HCI HAMMONIA SHIPPING AG has held an interest in this ship in the amount of roughly 56 %. The MS BENJAMIN SCHULTE had been conceived as a fund ship; however, the required equity could not be raised in time. The problems in raising capital were accounted for only by the difficult market environment for shipping funds because the ship as such is operated according to schedule. HCI HAMMONIA SHIPPING AG was able to make use 8

13 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint of this situation by negotiating a majority investment of HCI HAMMONIA SHIPPING AG in the amount of roughly 56 % at favorable conditions. There are long-term financing agreements for all ships of the fleet, concluded with banks established in ship financing. There are no obligations for HCI HAMMONIA SHIP- PING AG to take over additional ships so that the Group is not exposed to associated financing risks, unlike many comparable competitors. The six ships of the Sub-Panamax class with sizes of 2,500 TEU and the two 3,100 TEU ships are respectively operated in corresponding pools managed by Peter Döhle Schiffahrts-KG. The 2,500 TEU pool currently comprises 55 ships and the 3,100 TEU pool includes 16 ships at present. The 4,250 TEU ship is chartered out to United Arab Shipping Company (UASC) until mid UASC is among the 20 largest liner shipping companies worldwide (Alphaliner Monthly Monitor, February 2011). The three Post-Panamax vessels of 7,800 TEU each are chartered out for long terms to the world s largest and highly rated shipping company A.P. Moeller-Maersk until the year HCI HAMMONIA SHIPPING AG is thus distinguished by a solid concept of operation. The combination of ship operation in pools on the one hand and long-term charters of ships on the other hand reduces the volatility of charter revenues and thus cushions the effects of the currently still low charter rates in the Sub-Panamax segment. For the 2,500 TEU ships of HCI HAMMONIA SHIPPING AG, the average pool rates of the year 2010 came to roughly USD 13,700 a day. Over the same period, comparable market rates were around USD 9,000 a day (Clarkson Research Services, Sub-Panamax 2,500 TEU grd 6-12-month time charter rate) and thus about USD 5,000 a day below the achieved pool rate. Pool inclusion of the 2,500 TEU ships could therefore tide over the extremely weak market phase for Sub-Panamax ships. The rates of the 3,100 TEU pool clearly recovered in the course of the year They were temporarily far below USD 8,000 a day at the beginning of the year under review. In December 2010 the rate was roughly USD 12,600 a day and thus about 60 % above the low point in pool revenues during the reporting period. On annual average, the pool rate came to approx. USD 11,600 a day, on one level with comparable market rates of the same period (Clarkson Research Services, Panamax 3,500 TEU gls 6-12-month time charter rate). However, some charter agreements of pool ships at very low rates will expire in the first quarter of the year 2011 and the currently achievable rates of roughly USD 19,000 a day (Hamburg Shipbrokers Association (VHSS), New ConTex, 05/04/2011) are considerably above the pool average so that pool revenues can be expected to pick up noticeably. There are currently no indications that irregularities in payments might occur on the part of the pool ships charterers. The rising transport volume and the corresponding rebound of cargo rates have led to significant improvements of liquidity for most liner shipping companies. The 7,800 vessels under long-term charter to A.P. Moeller-Maersk continue to generate the agreed charter revenues on schedule. The same applies for MS BENJAMIN SCHULTE and the charter agreement with UASC. The pool concept and the long-term charter agreements continue to make a substantial contribution to the stabilization of the fleet s revenue flows. While the income level is still below expectations at present, operating costs, borrowing costs, and depreciation and amortization are covered so that considering the fleet as a whole positive earnings after taxes were achieved again this year. MS HAMMONIA MASSILIA and MS HAMMONIA ROMA were equipped with the existing cranes again by the charterer s request and for achieving a higher charter rate. For this construction work, the ships had to be transferred to the dry dock for some 35 days altogether. Refitting costs for both ships were assumed entirely by the 2,500 TEU pool. The operation of the fleet in service has been for the most part trouble-free and the charterers are highly satisfied with the ships technical performance. 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 crisis-related requirements of the 2,500 TEU ships. Accordingly the ships may defer four quarterly payments. Of the six shipping companies addressed, three already deferred two quarterly payments each in the year 2010 so that two more deferments remain for the year In respect of three other companies, one quarterly payment each was deferred in the year 2010 so that three more payments can 9

14 HCI HAMMONIA SHIPPING AG Annual Report 2010 be deferred in the year 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 in the Group and to vouch for the debt service of the individual 2,500 shipping companies. The present 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. No addendum to the respective loan agreements has been signed with respect to the 3,100 TEU ships; however, negotiations on one of the two ships are well advanced already. For both 3,100 TEU ships, adjustments to the financing agreements are intended that mirror the concept applied for the 2,500 TEU ships. The payments on the loans are currently being deferred with the permission of the banks involved. For the partial financing of the acquisition cost of MS BEN- JAMIN SCHULTE, HCI HAMMONIA SHIPPING AG issued profit participation rights effective 17 December These rights have terms of five years and include fixed and performance-based compensation. Repayment and compensation conditions are arranged in a way that the liquidity of HCI HAMMONIA SHIPPING AG will be affected only to a small extent. The agreement forged with the financing banks in fiscal year 2009 in respect of the suspension of the so-called loan-to-value clause relating to the three 7,800 TEU vessels was extended by another twelve months under the same conditions in December Cost cutting scheme In the year under review 2010 another significant reduction in operating vessel costs such as expenses for personnel, maintenance, lubricants, and insurance policies was achieved in comparison to the initial planning budget. The reduction of labor cost realized already in the year 2009 by decreasing crew sizes to the level of safe manning could be largely maintained in the year Safe manning indicates the minimum crew size of a ship as determined by the respective flag state. Since the 3rd quarter of 2010 crew sizes have been increased moderately again without yet reaching the pre-crisis level. Thus significant savings on the original budget continue to be achieved. Cost savings compared to the budget without consideration of cost cutting measures (based on the budget at the beginning of the year 2009 including a cost increase of 2.5 %) came to roughly EUR 3.1 million after about EUR 3.3 million (not including exchange rate effects) in the previous year. For the year 2011 crew sizes are intended to be brought back to normal levels in order to be able to further guarantee the sound technical condition the ships are in. The previous savings measures have not compromised the reliability of the fleet or caused damages to the vessels. Less than 0.2 days of unscheduled off-hire periods per ship were recorded in the year _1_3 Market development The global economy recovered faster and stronger than expected in the year 2010 and is continuing its course for growth. After the International Monetary Fund (IMF) had expected an annualized growth in the global economic performance of 4.2 % in the first quarter of 2010, the forecast has meanwhile been raised to 5.0 % (IMF, World Economic Outlook Update, 25 January 2011). This is the strongest growth on record since the year The increase in the economic performance of the emerging markets of 7.1 % turns out stronger than in the industrialized countries with 3.0 %. The IMF expects a continued increase in the global economic performance for the years 2011 and 2012 as well, at 4.4 % and 4.5 %, respectively. The global trading volume, relevant to the container shipping industry, also showed a positive trend. The IMF estimates the growth in the global trading volume for the year 2010 at 12 % (IMF, World Economic Outlook Update, 25 January 2011). For the years 2011 and 2012 further growth by roughly 7 % per annum is predicted for the worldwide trading volume. On the Asia-Europe route, container traffic gained 17.7 % on the prior-year period of comparison in the year 2010, and it gained about 13.3 % on the Asia-U.S.A. route as of November compared to the previous year (Clarkson Container Intelligence Monthly, February 2011). The intra-asian container traffic even climbed roughly 20 % (The Platou Report 2011). Container traffic on the North-South route grew by 8.2 % (Howe Robinson, The Container Ship Market, 24/02/2011). This explains the substantial increase in de- 10

15 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint mand for container vessels in the year The Institute of Shipping Economics and Logistics (ISL) conservatively assumes an annualized container traffic growth around 12 % for the second half-year And Clarkson Research expects a 12.1 % growth for the full year 2010 (Clarkson Container Intelligence Monthly, February 2011). Thus the industry has reached a dynamic growth path comparable to the time before the shipping crisis. The prospects remain positive for the years 2011 and 2012, too. Clarkson anticipates an increase in container turnover of 9.7 % in the year 2011 and of 8.8 % in the year 2012 (Clarkson Container Intelligence Monthly, February 2011). The revival in demand resulted in a decrease in inactive container ship capacity by roughly 80 % (Alphaliner Monthly Monitor, January 2011). While 581 ships were still out of operation at the beginning of the year 2010 (this equaled about 11.6 % of the entire container fleet capacity), this portion was reduced by mid- September 2010 to 1.5 % of the fleet capacity. The reasons for this trend were particularly the strong recovery on the demand side and the so-called slow steaming. By the end of the year 2010 the number of ships out of operation rose to 145, owing to the season (corresponding to 2.3 % of the fleet capacity). This coincided with a drop in rates. As the seasonal decline in demand for transport capacity turned out lower than expected, the cargo rates picked up slightly in December already again. With respect to the cargo rates, i.e. the transport costs per container, beginning in the fall 2009 a noticeable recovery set in so that most liner shipping companies generated positive net results in the year 2010 again. This development has also had a positive effect on the charter market for container ships since the spring 2010, where an unexpectedly early and strong rebound occurred. Some vessel size classes even recorded shortages in tonnage supply in the course of the year. Owners of Panamax container ships around 4,000 TEU profited in particular from this situation. The Container Ship Time Charter Assessment Index (ConTex) starting from a historical low in November 2009 gained 239 points since January 2010 to reach 540 points by midyear, coming to 555 points at the end of the year Another indicator that mirrors the more positive evaluation of the market participants is the revival in the markets for new ship constructions and second-hand vessels. The third quarter of 2010 saw a considerable increase in the volume of construction contracts. Maersk Broker reports new orders with a total capacity of some 600,000 TEU in the year 2010 (Maersk Broker, Container Charter Market Report January/February 2011). At the end of January 2011, the order receipt for new container shipping capacity amounts to roughly 26 % of the full container fleet currently in service. Roughly 79 % of the order books is accounted for by ship sizes beyond 5,100 TEU (Alphaliner Monthly Monitor, January 2011). Over the full year 2010, container ships with a total capacity of some 1.3 million TEU were delivered (Maersk Broker, Container Charter Market Report - January/February 2011). Due to cancelations and postponements, these were at least about 700,000 TEU less than initially planned (The Platou Report 2011). Around half of the deliveries concern vessel sizes beyond 8,000 TEU (Alphaliner Monthly Monitor, January 2011). According to Maersk, the fleet growth rate will come to 10.2 % in the year 2011 and 8.0 % in the year 2012 in consideration of ship breaking in relation to transport capacity (Maersk Broker, Container Charter Market Report - January/February 2011). Alphaliner expects a slightly slower annual growth around 8.8 % for 2011 and 8.6 % for 2012 allowing for ship breaking and postponed deliveries (Alphaliner Monthly Monitor, January 2011). The fleet growth in the next two years thus about equals the predicted growth in container turnover. The market trend for the smaller vessel sizes below 3,000 TEU, of special relevance to HCI HAMMONIA SHIPPING AG, appears more favorable in contrast as few new ships are up for delivery and the share of old ships is relatively large, leading to a high ship breaking potential. In the size segments between 3,000 and 7,500 TEU, a somewhat stronger fleet growth is conceivable, yet falling short of the average growth of the entire container vessel fleet. A high two-digit percentage growth in capacity is recorded by the ultra large container vessels of more than 10,000 TEU. The resulting cascade effect (i.e. crowding out vessels of a certain size from their established routes by the respectively larger vessel size) will exert corresponding market pressure on the other segments. This cascade effect will be limited by the port infrastructure (draft restrictions, quay wall length, and crane equipment). It is also expected that by the use of very large container vessels that can put into few ports, the demand for feeder services will increase and the feeder ships used will have higher average capacities. 11

16 HCI HAMMONIA SHIPPING AG Annual Report _2 Profit and loss, financial position and assets and liabilities of the Group (according to IFRS) 3_2_1 Profit and loss The key figures indicating profit and loss for fiscal year 2010 in comparison to fiscal year 2009 are as follows: EUR Change Revenues 62,647 62, Vessel operating costs -21,718-19,615-2,103 Vessel operating result 40,929 42,639-1,710 Other operating income 4,138 1,844 2,294 Other operating expenses -3,207-3, Result from shipping operations 41,860 40,583 1,277 Depreciation of property, plant and equipment and amortization of intangible assets -22,400-22, Impairment loss 0-4,872 4,872 Reversal of impairment loss 1, ,607 Earnings before interest and taxes (EBIT) 21,067 13,448 7,619 Interest income Interest expenses -16,472-16, Earnings before taxes (EBT) 4,924-2,391 7,315 Income taxes net income / loss for the period 4,834-2,753 7,587 Unchanged from the previous year, revenues were generated in fiscal year 2010 by chartering out eleven container vessels. Eight of these eleven container vessels were operated in pools (MS WESTPHALIA and MS SAXONIA in the 3,100 TEU pool, 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 DA- NIA, MS HAMMONIA HAFNIA and MS HAMMONIA FIO- NIA are operated under ten-year time charter agreements with A.P. Moeller-Maersk and are not included in pools. Due to the long-term time charters, these container ships were not affected by the effects of the shipping crisis and contributed substantially to the stabilization of the Group s earnings. Of the total revenues in the amount of EUR 62.6 million (previous year: EUR 62.3 million), 54 % (previous year: 51 %) were generated by the Maersk vessels. Despite the still noticeable aftereffects of the shipping crisis in the year 2010, revenues remained stable compared to the previous year. This was partially due to the successful implementation of the restructuring agreements concluded with liner shipping companies CSAV and CCNI. The pools had received shares of these liner shipping companies as charter surrogate in return for the temporary reduction of charter rates. From their sale, subsidiaries of HCI HAMMO- NIA SHIPPING AG received an inflow of EUR 5.5 million in the fiscal year. On the other hand, the performance of the USD exchange rate favored the statement of revenues in EUR compared to the previous year. 12

17 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 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 2.1 million essentially results from increases in personnel expenses in the approximate amount of EUR 400k (increase in crew sizes, cf. above) and costs incurred in connection with the erection of cranes on two ships, reimbursed in the same amount (about EUR 700k) by the pool. Furthermore, the stronger USD raised the EUR statement of vessel operating costs. Primarily because of higher income or lower expenses from exchange rate hedging, the other operating result gained about EUR 3.0 million on the prior-year result to reach about EUR 0.9 million. The result from shipping operations was thus EUR 1.3 million higher than the year before and came to roughly EUR 41.9 million. The six 2,500 TEU seagoing vessels constructions bought new are depreciated over total useful lives of 25 years according to the straight-line method. The seagoing vessels MS SAXONIA and MS WESTPHALIA bought secondhand are depreciated over remaining useful lives of 21 years each. The three 7,800 TEU ships bought secondhand in the year 2008 (MS HAMMONIA FIONIA, MS HAMMONIA HAFNIA, and MS HAMMONIA DANIA ) are depreciated under the straight-line method in consideration of remaining useful lives of 19 years. Due to the effects of the shipping crisis and the corresponding lower expectations for earnings in the next fiscal years, impairment loss was recognized in fiscal year 2009 for altogether five container ships. Affected were the two container ships operated in the 3,100 TEU pool and three of the six container ships included in the 2,500 TEU pool. The determination of impairment was carried out in application of the discounted cash flow procedure based on a planning model that considered the forecasts and expectations for the development of vessel operating costs prepared by the respective pool managers. Due to a partial link to market indices and a resulting bigger chance of recovery coinciding with booming shipping markets, the impairment losses of the two container vessels operated in the 3,100 TEU pool could be reversed and a write-up of EUR 1.6 million was recognized in profit or loss. receivables by two liner shipping companies. The receivables from one liner shipping company were assessed as irrecoverable by the respective pool management and ultimately written off. The receivables from the second liner shipping company have also not been paid yet, which is why the recoverability of the receivables is still linked to high uncertainty from today s perspective. The impairment loss was therefore maintained. Despite increased cash and cash equivalents, the interest income remains on the previous year s level. Interest income results for the most part from the addition of accrued interest relating to the advance payments of service fees. Because of the high interest rate hedge ratio, interest expenses remained virtually unchanged from the previous year as well. On the whole, the company s profit and loss and the consolidated net income of EUR 4.8 million generated in the fiscal year 2010 are still affected significantly by the effects of the shipping crisis on the container shipping industry, as was already the case in the previous year. 3_2_2 Financial position Financial management aims at safeguarding the Group s optimum capital structure 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, made available by HCI HAMMONIA SHIPPING AG, and 70 % borrowed capital (with respect to the seagoing vessels acquisition cost at the time of investment: time of the ship s delivery). Funds are appropriated at the level of the individual single-ship limited partnerships. Please refer to the risk report (3.5.1) for the management of the risk of changes in exchange rates and interest rates. The Group s financial position can be illustrated with the help of the statement of cash flows which differentiates between cash flows from operating activities, investing activities, and financing activities. The impairment loss stated in the previous year included write-down on receivables in the amount of EUR 2.0 million. Both pools are owed large amounts of outstanding 13

18 HCI HAMMONIA SHIPPING AG Annual Report 2010 EUR Change Cash flow from operating activities 29,382 22,457 6,925 Cash flow from investing activities 1,375-52,252 53,627 Cash flow from financing activities -20,731 25,693-46,424 Net change in cash and cash equivalents 10,026-4,102 14,128 Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of period 15,967 20,643-4,676 Cash and cash equivalents at end of period 26,116 15,967 10,149 The cash flow from operating activities is determined according to the indirect method. The cash flow from investing activities in the year 2010 results from the net purchase price (purchase price less non-cash transaction components) for the interest in MS BENJAMIN SCHULTE Shipping GmbH & Co. KG as well as the interest in Beteiligung MS BENJAMIN SCHULTE Shipping GmbH plus (from Group perspective) acquired liquid assets. Due to the high share of non-cash transaction components in connection with the acquisition of the interests, the resulting positive cash flow from investing activities comes to EUR 1.4 million. The acquisition of the limited partner s interests was carried out essentially through the issue of a profit participation right by way of contribution in kind. The contribution in kind related to a bank loan for equity pre-financing. By resolution passed at the partners meeting of MS BENJAMIN SCHULTE Shipping GmbH & Co. KG, the loan was converted into equity (debt-to equity swap). The cash flow from financing activities is the result of the repayment of loans in the amount of EUR 20.7 million (previous year: EUR 24.7 million). Payments on loans have been reduced compared to the previous year due to the deferment of repayments regarding the 2,500 TEU and 3,100 TEU container ships. The prior-year amount was affected by taking out loans for two new ship constructions delivered in early As of the reporting date and unchanged from the previous year, the Group had unused overdraft facilities of EUR 0.7 million at its disposal. Because of the low level of charter rates, the 3,100 TEU container ships deferred four quarterly payments each and the 2,500 TEU container ships deferred between one and two quarterly payments each. This happened in agreement with the lending institutions involved. With respect to the 2,500 TEU container vessels, deferment agreements were concluded with the financing credit institutions at the end of January 2011, providing for the deferment of altogether four quarterly payments each. Operating expenses and interest were covered by the charter revenues. Cash and cash equivalents gained EUR 10.1 million altogether on the prior-year amount and came to EUR 26.1 million at the end of fiscal year _2_3 Assets and liabilities The Group s assets and liabilities are as follows: EUR / 12 / 2010 in % 31 / 12 / 2009 % Change Assets Non-current assets 507, % 451, % 55,581 Current assets 31,088 6 % 21,083 4 % 10,005 Total assets 538, % 472, % 65,586 Equity 163, % 151, % 12,412 Liabilities Non-current liabilities 319, % 283, % 35,276 Current liabilities 55, % 37,743 8 % 17,898 Total equity and liabilities 538, % 472, % 65,586 14

19 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Virtually unchanged from the previous year, 94 % of total assets come in the shape of non-current assets. These are essentially twelve container vessels in service. Changes in non-current assets can be shown with the help of the following table: The Group s profit and loss, financial position and assets and liabilities are altogether in good order. 3_3 Non-financial performance indicators EUR January ,752 Additions 42,632 Depreciation and amortization -22,400 Impairment loss -108 Reversal of impairment loss 1,607 Currency effects 34,904 Other changes -1, December ,333 On-hire days 2010 Potential on-hire days 4, Off-hire days thereof planned docking periods On-hire days 3, Operational readiness (not including docking periods) % Operational readiness (including docking periods) % Current assets include cash and cash equivalents in the amount of EUR 26.1 million (previous year: EUR 16.0 million). Equity was raised by EUR 12.4 million compared to the previous year. Due to the first-time consolidation of MS BENJAMIN SCHULTE Shipping GmbH & Co. KG and currency effects, total equity and liabilities increased considerably in comparison to the previous year. Despite this increase, the share of equity in total equity and liabilities has decreased only slightly from the previous year in relative terms. The changes in equity are as follows: EUR January ,122 net income / loss for the period 4,834 Changes in fair value of derivatives in cash flow hedges -3,376 Changes in exchange rate difference 10, December ,534 Non-current liabilities essentially comprise the non-current portion of the ship mortgage loans taken out for the twelve seagoing vessels in service in the amount of EUR million (previous year: EUR million) and the obligations from derivative financial instruments. Current liabilities essentially result from the ship mortgage loans current portion in the amount of EUR 46.0 million (previous year: EUR 30.6 million). The fleet of HCI HAMMONIA SHIPPING AG has distinguished itself by a very high level of operational readiness. Even taking into consideration off-hire days for the erection of cranes on the vessels MS HAMMONIA MASSILIA and MS HAMMONIA ROMA in the dry dock, the fleet s operational readiness is above 99 %. Adjusted by docking periods, the level of operational readiness approximates 100 %. The impeccable technical condition of the ships and the crews high level of training reflect the performance level of the technical operation. 3_4 Subsequent events After negotiations on deferments of up to four quarterly redemption payments with respect to the six 2,500 TEU container vessels were concluded successfully with the financing banks in September 2010, the corresponding agreements were signed by all parties involved at the end of January For the deferments tolerated by the banks involved with respect to both 3,100 TEU vessels, the contracts are currently being finalized. Apart from that no events of particular significance with potential effects on the consolidated financial statements took place between the end of the year 2010 and the date of the preparation of this report. 15

20 HCI HAMMONIA SHIPPING AG Annual Report _5 Risks and opportunities 3_5_1 Risk report The Management Board of HCI HAMMONIA SHIPPING AG considers a systematic and efficient risk management a task to be continuously developed. The Group has a wellstructured, 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 covering corporate and capital market law is provided by the Management Board and by HCI Hanseatische Schiffsconsult GmbH. 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 members of size-specific pool arrangements, 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 pool at below-average rates can reduce the pool result. The same applies for the case that pooled ships are temporarily out of charter. Peter Döhle Schiffahrts-KG, one of Germany s best-known and most reputable privately owned ship operating companies and brokers, manages the pool arrangements. The 4,250 TEU container vessel BENJAMIN SCHULTE, a new addition as of the end of 2010, 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, have been chartered for a minimum remaining term of seven years by the world s largest shipping company, A.P. Moeller-Maersk, providing for a medium to long-term stabilization of the profit position. 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 pool arrangements, 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 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. 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 runs an active interest and currency management in order to reduce the risks of exchange rate and interest rate changes. 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 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. 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 conclu- 16

21 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint sion 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 opportunity to renegotiate the financing conditions or the right to insist on immediate payment. 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 and loss, financial position and assets and liabilities does not apply. 3_5_2 Internal control system (ICS) The internal control system of the Group of HCI HAMMO- NIA 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 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 taken into consideration. The Group s accounting and the preparation of the consolidated statement of financial position according to IFRS are provided by an xternally 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 17

22 HCI HAMMONIA SHIPPING AG Annual Report _5_3 Opportunities for future development Charter rates for container vessels went up by roughly 150 % in the year 2010 with respect to the size classes of relevance to HCI HAMMONIA SHIPPING AG, 2,500 TEU and 3,100 TEU (VHSS, New ConTex). However, even at the end of 2010 they were still below the long-term average. Furthermore, the development of revenues generated by the respective pools follows the development of charter rates in the spot market with delay so that a satisfying increase in the pool revenues of HCI HAMMONIA SHIPPING AG can be expected for the medium term. Due to the current position in the market cycle, we assume that a major part of the recovery phase lies still ahead of us. In view of the low volume of orders in the segment of Sub-Panamax and Panamax container vessels even a tonnage squeeze is conceivable so that charter rates in this segment have the potential of reaching a level that is significantly above the historical average. For the long term we continue to assume that container shipping will remain an attractive growth segment. Driving forces are the continuing globalization, the strong growth of emerging markets, and the advancing containerization. As HCI HAMMONIA SHIPPING AG has up-to-date shipping tonnage, the company is set to benefit from future positive developments with respect to charter rates. A favorable development relating to prices of used ships and new constructions can then be made use of profitably. Apart from market opportunities through business operations, HCI HAMMONIA SHIPPING AG also offers effective protection against increasing inflation. As the value of a vessel is partly oriented towards the prices for raw materials and labor cost, future price increases can be compensated by a rising asset value of the fleet. The current market environment provides opportunities as well. As was the case with MS BENJAMIN SCHULTE, banks and issuing houses continue to feel the necessity to dispose of ships and/or transfer them to alternative funding concepts. For many ships and new ship constructions, the issue of required equity financing has not been resolved. Originally scheduled raising of equity on the German KG market (limited partnerships) is currently not possible at a level comparable to previous years. On the other hand, neither are the issuing houses able to provide the missing equity out of their own resources, nor are the banks interested in fully entering the ships in their statements of financial position. Due to the conditions stipulated by the Federal Financial Supervisory Authority with regard to capital requirements, providing equity for such ship projects is very expensive for credit institutions. In such cases, as happened for instance with MS BENJAMIN SCHULTE, HCI HAMMONIA SHIPPING AG is able to present possible solutions to banks and issuing houses and may thus acquire vessels at favorable conditions. The prerequisite is that an acquisition is covered by the liquidity planning of HCI HAMMONIA SHIPPING AG. The required funds can be raised through the authorized capital increase by an issue of new shares or the issue of profit participation rights against contribution in cash and/or in kind. Another opportunity arises if the exchange rate of the USD gains on the euro. As the majority of cash flows and assets are recorded in USD, a stronger USD has a positive effect on profit and loss, financial position and assets and liabilities. 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 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. Based on the current level of charter rates, some 56 % of the company s revenues relate to binding charter agreements the three 7,800 TEU vessels are chartered out to market leader Maersk while the 4,250 TEU ship in which the company acquired an interest in December 2010 is chartered out to United Arab Shipping Company. The other ships receive pool revenues that tend to follow the market rates. A return to the long-term average amounts would raise the total charter revenues of the 12 ships by roughly 22 % (the revenue share made up of binding charters would then go down to some 45 %). While the pools considerably delayed the declining revenues during the phase of the drastic collapse of rates in the market and the situation of revenues of the pooled vessels could be stabilized significantly above market level, the pool rates follow the market rates during the market s recovery with a certain delay as well. If and over what period a recovery of charter rates and in consequence of pool rates will lead to the long-term average or if even as in the years shortage prices considerably above that average can be expected essentially depends on the ratio of tonnage availability and demand. 18

23 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint On the supply side, a number of mechanisms are noticeable that contribute to the market s self-healing. Among these are in particular: Increased ship breaking of older vessels 2009: approx. 381,000 TEU (9.0 times the 10-year average of approx. 42,000 TEU) 2010: approx. 184,000 TEU (4.4 times the 10-year average ) Postponements of delivery of new ship constructions 2009: approx. 500,000 TEU 2010: approx. 400,000 TEU Cancelations of a not precisely quantifiable number of new ship constructions By means of slow steaming, some 265,000 TEU were additionally under charter on average in 2010: The liner shipping companies had their ships go slower. The additional cost for the resulting necessity of chartering additional ships was overcompensated for by saving fuel costs as fuel consumption goes down disproportionately with the reduction of machine performance. Moreover, no new container vessels were ordered in the period between August 2008 and fall 2010: Orders placed by quarters 1,40 1,20 1,00 TEU million 0,80 0,60 0,40 0,20 0,00 Q 1 / 2005 Q 2 / 2005 Q 3 / 2005 Q 4 / 2005 Q 1 / 2006 Q 2 / 2006 Q 3 / 2006 Q 4 / 2006 Q 1 / 2007 Q 2 / 2007 Q 3 / 2007 Q 4 / 2007 Q 1 / 2008 Q 2 / 2008 Q 3 / 2008 Q 4 / 2008 Q 1 / 2009 Q 2 / 2009 Q 3 / 2009 Q 4 / 2009 Q 1 / 2010 Q 2 / 2010 Q 3 / 2010 Q 4 / 2010 Q 1 / 2011 orders deliveries Source: Alphaliner March

24 HCI HAMMONIA SHIPPING AG Annual Report 2010 Thus the ratio of new construction volume and overall tonnage in service went down to a healthy and significantly below-average level. Decline of order book % % % TEU million % 40 % 30 % 4 20 % 2 10 % 0 0 % fleet order book ratio of order book to fleet Source: Alphaliner December The order book based on the global fleet of container vessels is also rather empty in respect of the size classes representing the company s pooled ships. Existing fleet December 2010 Orders for new ships Planned deliveries until end of 2013 Size TEU TEU in % ,798 1,859, ,262, , ,637, , ,074, , ,101, , ,821, , ,871 49, ,438 65, ,759 20, Total 14,282,499 3,858, Source: Alphaliner January 2011, rounding differences possible. 20

25 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint The International Monetary Fund assumes continued economic growth for the next years, together with a disproportionate growth in trading volume especially in the emerging markets of Southern and Eastern Asia. However, the global economic performance is also affected significantly by the future political developments in the oil producing nations in the Middle East. The Japanese economy and its ability to absorb the damages of the natural and environmental disaster without straining the financial markets will also have an effect on global growth and global trade. Growth of world trade volume % World Trade USA Euro Area Japan Brazil Russia India China Source: IMF, World Economic Outlook Update, January Our 2,500 and 3,100 TEU pool ships are medium-sized, partially crane-equipped units very well suited for the fastgrowing feeder traffic and the regional services of Southern Asia and Africa. Against this backdrop we are expecting a disproportionately high increase in demand facing a tight supply situation. This market situation should provide considerable increases in charter rates in the medium term and with the pool-specific delay also to a clearly improved profitability of the company altogether as long as no new global macroeconomic risks emerge. For the year 2011 we anticipate an increase in revenues compared with 2010 because of the market-driven increase in pool charter revenues and the newly acquired vessel. On the other hand, vessel operating costs will rise lightly in the year 2011 as the crew sizes will be increased back to normal on the ships. We therefore merely expect a relatively low increase in the vessel operating result on balance. Interest expenses will also tend towards a slight increase due to increased margins. The same applies for depreciation and amortization due to the newly acquired ship. Furthermore, we predict a somewhat weaker USD exchange rate for 2011 compared to 2010, altogether reducing the planned earnings 2011 slightly. Thus we expect a slightly positive consolidated net income before special effects for the year 2011 which will altogether probably turn out below the consolidated net result realized in the year We expect another considerable increase in revenues for the year 2012 because of the delay effect of pool charter revenues at otherwise only moderately rising costs. Only with respect to interest expenses do we anticipate a slight deterioration from plan year 2011 due to the repayments. All things considered, we therefore expect a clearly positive consolidated net income before special effects for the year With regard to the development of the financial position, we anticipate a continued stabilization or even slightly positive development in the year 2011 compared to 2010 due to the granted repayment deferments, based on our assumption that repayment deferments will be maintained for the 3,100 TEU ships as well. Because of the scheduled catching up on repayments, a slightly declining liquidity development will result for the year On the whole, planned liquidity will be sufficient at any time to fulfill all of the Group companies payment obligations. We do not see any liquidity risks with the potential to threaten the Group s existence at present. 21

26 HCI HAMMONIA SHIPPING AG Annual Report _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. 3_8 Profit and loss, financial position and assets and liabilities of the holding company HCI HAMMONIA SHIPPING AG 3_8_1 Profit and loss Profit and loss of the parent is essentially determined by revenues from investments and write-ups on financial investments. Revenues from investments in the single-ship limited partnerships are as follows: Investments in singleship limited partnerships Revenues from investments in EUR 000 HAMMONIA BAVARIA 63 HAMMONIA FIONIA 2,488 HAMMONIA DANIA 2,370 HAMMONIA HAFNIA 2,864 Total 7,785 As a consequence of the shipping crisis, impairment loss in the total amount of EUR 5,184k was recognized in fiscal year 2009 with respect to two investments on account of high losses incurred at some single-ship limited partnerships. Due to the recovery of the relevant shipping markets, the profitability prospects of the two subsidiaries involved have significantly improved. Therefore the impairment loss was reversed in the fiscal year. Essentially because of this reversal of impairment loss in the amount of EUR 5,184k, the other operating income was EUR 5,449k higher than in the previous year. In the reporting period, other operating expenses incurred in the total amount of EUR 2,412k. These essentially resulted from service costs (EUR 1,500k) as well as audit fees, tax consultancy and legal fees (EUR 407k). Due to the issue of a profit participation right at fixed interest, the parent s income statement shows material interest expenses for the first time, at EUR 36k. Altogether a net income of EUR 11,210k was recorded for the year under review. In consideration of profit brought forward from the previous year in the amount of EUR 97k, the resulting retained profits come to EUR 11,307k. 3_8_2 Financial position In the reporting period, the parent company states a cash flow from operating activities in the amount of EUR 1.8 million. With a cash flow from investing activities of EUR -2.1 million, currency-related changes in cash and cash equivalents of EUR 0.2 million and in considering cash and cash equivalents of EUR 1.1 million at the beginning of the period, cash and cash equivalents come to altogether EUR 1.0 million as of the reporting date. Indicated cash flows do not include the following non-cash investing and financing transactions: Issue of a profit participation right in the amount of EUR 7,450k by way of contribution in kind (loan receivable) Acquisition of an investment in a single-ship limited partnership by way of the conversion of the abovementioned loan receivable into limited liability capital. 22

27 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 3_8_3 Assets and liabilities The parent company s assets and liabilities are as follows according to HGB reporting (German Commercial Code): EUR / 12 / / 12 / 2009 Assets Fixed assets 152, ,725 Receivables and other assets 14,659 9,142 Liquid assets 992 1,138 Prepaid expenses 1,079 2, , ,339 Equity and liabilities Equity 161, ,152 Provisions Liabilities 7, , ,339 The parent s HGB statement of financial position states equity of EUR 161,362k 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 11,307k. The increase compared to the previous year results from the net income of EUR 11,210k. Within equity there were movements between subscribed capital and capital reserve. By shareholders resolution of 11 June 2010, the share capital was reduced by EUR 122,773k and this amount was allocated to a capital reserve in accordance with Section 272 (2) no. 4 HGB. The parent company s liabilities went up by altogether EUR 7,671k compared to the previous year, essentially due to the issue of a profit participation right in the amount of EUR 7,450k. The profit participation right was carried as noncash transaction by contribution of a loan receivable from a single-ship limited partnership. The fixed assets reported in the separate financial statements according to HGB are made up solely of financial investments, relating to the investments in the single-ship companies in the legal form of GmbH & Co. KG and their general partners. Fixed assets went up EUR 14,742k over the previous year. EUR 8,947K of this amount relate to the acquisition of a majority interest in MS BENJAMIN SCHULTE Shipping GmbH & Co. KG and its general partner. The interest acquisition was essentially a non-cash transaction by way of a conversion of a loan receivable into limited liability capital. Other additions to fixed assets result from the reversal of impairment losses recognized for subsidiaries in the previous year. Receivables and other assets result for the most part from claims to profits from the investments in single-ship limited partnerships. Prepaid expenses essentially relate to the advance payment of administrative expenses based on a service agreement. The parent s liquid assets were slightly reduced compared to the previous year. Inflow from the distribution of profit shares essentially faced an outflow of cash purchase price components for the acquisition of the interest in MS BEN- JAMIN SCHULTE Shipping GmbH & Co. KG. The parent company s profit and loss, financial position and assets and liabilities appear altogether in good order. 23

28 HCI HAMMONIA SHIPPING AG Annual Report _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 2010 are owned by HSH Nordbank AG, Martensdamm 6, Kiel (18.69 %). HAMMO- NIA Reederei GmbH & Co. KG, Elbchaussee 370, Hamburg, holds an interest of 9.95 %. Peter Döhle Schiffahrts- KG, Elbchaussee 370, Hamburg, with indirect holdings of 3.36 % through a subsidiary, has 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 (13.31 %). 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. Amendments to the articles of incorporation generally require a three-quarter majority of the capital represented at passing the resolution according to Section 179 AktG. 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 according to Section 14 of the articles of incorporation. The Management Board was authorized by shareholders resolution of 11 June 2008 to increase the company s share capital, subject to the Supervisory Board s consent, by up to EUR 6,820,700 until 10 June 2013 through the one-time or repeated offer of no-par bearer shares against cash contribution (authorized capital). By shareholders resolution of 11 June 2010, this authorized capital was canceled and a new authorized capital was created. The Management Board was authorized, subject to the Supervisory Board s consent, to increase the company s share capital by up to EUR 6,820,700 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 shareholders resolution of 11 June 2010 the Management Board was also 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. In the amount of EUR 7,450,000 this authorization was already made use of by resolution of 9/17 December By shareholders resolution of 10 June 2009, Management Board and Supervisory Board were authorized to repurchase own shares in the total amount of up to 10 % of the company s current share capital and to utilize own shares. This authorization expired on schedule as of 9 December 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. 24

29 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint The company has not entered into any compensation agreements with members of the Management Board or employees for the case of a takeover bid. 3_10 Statement on corporate governance 3_10_1 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 govern 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. 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 must report to the chairman of the Supervisory Board without delay. 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 things, for the approval and thus the adoption of the consolidated financial statements and the separate financial statements of HCI HAMMONIA SHIPPING AG and it maintains close contact with the auditor for this purpose. The members of the Supervisory Board are not engaged in any business or personal relationships with the company 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 and loss, financial position and assets and liabilities, risk position, risk management, and risk control. In addition, the Management Board reports at least once a year on essential issues of corporate planning. Arising conflict of interests is reported to the Supervisory Board by the Management Board members without delay. In the past fiscal 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 for the assessment of business situation and 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. 3_10_2 Statements on corporate governance practices HCI HAMMONIA SHIPPING AG has not determined any particular guidelines for specific corporate governance practices beyond the statutory requirements. 25

30 HCI HAMMONIA SHIPPING AG Annual Report _11 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 HAM- MONIA 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 HAM- MONIA 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. Management Board and Supervisory Board Management Board and Supervisory Board of HCI HAM- MONIA 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 already acquired for the AG through single-ship limited partnerships. Management Board member Jan Krutemeier is managing director of HCI Hanseatische Schiffsconsult GmbH, whose purpose of business is among others the conception and prospectus compilation with regard to investments in the realm of closed-end ship funds. HCI Hanseatische Schiffsconsult GmbH 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 and Supervisory Board members are disclosed in detail in the company s stock exchange prospectus. The notes of annual report 2010 contain information about transactions with related individuals and companies. In our opinion, the firmly established cooperation of HCI HAMMONIA SHIPPING AG, HCI Hanseatische Schiffsconsult GmbH, 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 HAMMONIA Reederei. One member has collected international experience over many years. At present there is no woman on the Supervisory Board. 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 intends to resolve on the following objectives for its future composition in its meeting of 18 April 2011 in view of No of the German Corporate Governance Code: The composition of the Supervisory Board of HCI HAM- MONIA 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 due to 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 SHIP- PING AG is in Germany due to 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. 26

31 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint As 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 regards such a limit as 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 examination 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. For future election proposals it shall be taken into consideration that the objectives determined by the Supervisory Board in respect of an adequate participation of women are not yet met. However, the other objectives have been fulfilled already. 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 interim 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. 3_11_1 Declaration of compliance in accordance with Section 161 AktG Management Board and Supervisory Board of HCI HAM- MONIA SHIPPING AG (the company ) declare that the company complied with the recommendations of the Government Commission German Corporate Governance Code in its version of 18 June 2009 (the Code old version ) as announced by the Federal Ministry of Justice in the official section of the electronic Federal Gazette on 5 August 2009 between the issue of the last declaration of compliance and 1 July 2010 with the exceptions listed below. The company s Management Board and Supervisory Board also 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 with the exceptions listed below since 2 July 2010 and will do so in the future: According to No. 3.8 (2), a deductible should be provided for in D&O insurance policies taken out for the Management Board by the company of at least 10 % of damages up to at least one and a half times of the Management Board member s fixed annual remuneration. For insurance agreements concluded before 5 August 2009, this new regulation is applicable from 1 July No. 3.8 (2) sentence 2 includes the recommendation that a corresponding deductible shall be agreed for Supervisory Board members. The D&O insurance concluded prior to 5 August 2009 for members of the company s Management Board and 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 company s Supervisory Board members sense of responsibility in observing their duties and responsibilities and exercising their functions. Therefore there are also no plans for the future introduction of a deductible with respect to Supervisory Board members. With respect to the Management Board members, the existing D&O insurance policy has been adapted to provide for a deductible of 10 % as of 1 July 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. 27

32 HCI HAMMONIA SHIPPING AG Annual Report 2010 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 have equal rights, the appointment of a 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 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 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 promptly. 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 term of the company s two current Management Board members ends in the course of the year Therefore an adequate consideration of women for the Management Board is not relevant at present. As the Management Board has only two members, diversity can 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 Borad and Supervisory Board do not consider it necessary at present to determine a long-term succession plan. However, the Supervisory Board intends to look for successors for Management Board members who retire on schedule in good time. There is no long-term planning for 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 propos- 28

33 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint als to the respective electoral bodies. The objectives of the Supervisory Board and the status quo of their implementation shall be published in the corporate governance report. So far the Supervisory Board has not defined such objectives. The company neither provides for nor intends to introduce a general age limit for Supervisory Board members. The company does not find such a limit adequate as the company s supervision primarily depends on knowledge, skills, and professional experience as deciding factors for the company. As the Supervisory Board has only three members, diversity can be observed only to a limited extent. An adequate consideration of women can be regarded only upon the end of the terms of the members of the Supervisory Board. The objectives of the Supervisory Board and the status quo of their implementation are published as part of the annual report 2010 for the first time. 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. 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 shareholders resolution 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 Berlin, 9 December 2010 on behalf of the Management Board: Jan Krutemeier on behalf of the Supervisory Board: Werner Berg 3_11_2 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, 11 April 2011 Dr Karsten Liebing Management Board Jan Krutemeier Management Board 29

34 HCI HAMMONIA SHIPPING AG Annual Report 2010 Benjamin Schulte (charter name UASC Shuwaikh) 4,250 TEU container ship, new in the fleet of HCI Hammonia Shipping AG since December

35 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 31

36 HCI HAMMONIA SHIPPING AG Annual Report _ Financial Statements income statement EUR 000 Note Revenues 27 62,647 62,254 Vessel operating costs 28-21,718-19,615 Vessel operating result 40,929 42,639 Other operating income 29 5,745 1,844 Other operating expenses 30-3,207-3,900 Result from shipping operations 43,575 40,583 Depreciation and amortization of property, plant and equipment and intangle assets 31-22,400-22,263 Impairment loss ,872 Earnings before interest and taxes (EBIT) 21,067 13,448 Interest income Interest expenses 34-16,472-16,169 Earnings before takes (EBT) 4,924-2,391 Income taxes net income / loss for the period 4,834-2,753 Earnings per share (basic) (EUR) Earnings per share (diluted) (EUR) Statement of comprehensive income EUR 000 Note net income / loss for the period 4,834-2,752 Foreign exchange losses /(gains) from currency translation of subsidiaries, financial statements 10,955-5,228 Gains /(losses) from hedging instruments applied for cash flow hedges 43 (a)ii changes recognized in profit or loss 6,851 5,920 changes recognized outside profit or loss -10,227 2,694-3,376 8,614 Other comprehensive income for the period 16 (e) 7,579 3,386 comprehensive income 12,

37 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint statement of financial position Assets EUR 000 Note 31 / 12 / / 12 / 2009 Non-current assets 507, ,752 Intangible assets Property, plant and equipment 6 507, ,693 Financial investments Other miscellaneous assets 8 0 1,055 Current assets 31,088 21,083 Inventories 9 1,534 1,462 Trade receivables Receivables from related parties Income tax receivables Other financial assets Other miscellaneous assets 13 2,078 2,248 Receivables from financial derivatives Cash and cash equivalents 15 26,116 15,967 Total assets 538, ,835 Equity and liabilities EUR 000 Note 31 / 12 / / 12 / 2009 Equity , ,122 Subscribed capital 16 (a) 13, ,414 Capital reserve 16 (b) 132,544 9,772 Retained earnings 16 (c) 13,312 8,478 Accumulated other equity 16 (e) 4,037-3,542 Non-current liabilities 319, ,969 Financial liabilities , ,812 Profit participation capital 18 7,339 0 Liabilities from financial derivatives 19 9,571 5,193 Non-controlling interests in equity 20 4,363 2,964 Current liabilities 55,641 37,744 Financial liabilities 21 46,018 30,296 Trade payables 22 1, Liabilities to related parties Income tax liabilities Other liabilities 25 1, Liabilities from financial derivatives 26 6,127 5,584 Total equity and liabilities 538, ,835 33

38 HCI HAMMONIA SHIPPING AG Annual Report 2010 statement of cash flows EUR 000 Note net income / loss for the period 4,834-2,752 Depreciation amortization of intangible assets and property, plant and equipment 22,400 25,151 Tax expense Elimination of net interest income 33,34 16,143 15,840 Other non-cash income and expenses 891 5,201 Decrease / increase in working capital 1,554-4,491 Decrease / increase in inventories Increase in trade receivables Decrease / increase in receivables from related parties Increase in other assets 289-3,360 Decrease / increase in trade payables Decrease in liabilities to related parties Increase in other liabilities Taxes refunded / paid Interest paid -16,111-16,948 Interest received Cash flow from operating activities 39 29,382 22,457 Payments for investments in intangible assets and property, plant and equipment 0-52,252 Net cash inflow from the acquisition of subsidiaries 47 1,375 0 Cash flow from investing activities 1,375-52,252 Dividend distribution 0-2,728 Payment receipt from taking out loans 0 53,462 Transactions costs for loans Repayments of loans -20,731-24,727 Cash flow from financing activities -20,731 25,693 Net change in cash and cash equivalents 10,026-4,102 Cash and cash equivalents at beginning of period 15,967 20,643 Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of period 15,38 26,116 15,967 34

39 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 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 adjustment Accumulated other comprehensive income Note 16 (a) 16 (b) 16 (c) 16 (d) 16 (d) 16 (d) Total consolidated equity Balance at 01 / 01 / ,414 9,771 13,959-16,072 9,144-6, ,216 comprehensive income 0 0-2,752 8,614-5,228 3, Dividend distribution 0 0-2, ,728 Balance at 31 / 12/ ,414 9,771 8,479-7,458 3,916-3, ,122 Balance at 01 / 01 / ,414 9,771 8,479-7,458 3,916-3, ,122 comprehensive income 0 0 4,834-3,376 10,955 7,579 12,413 Capital decrease -122, , Balance at 31 / 12 / , ,544 13,313-10,834 14,871 4, ,535 35

40 HCI HAMMONIA SHIPPING AG Annual Report 2010 statement of changes in non-current assets Development of intangible assets EUR 000 Historical cost / 01 / 2009 Exchange differences Additions Additions from business combinations Reclassifications Disposals 31 / 12 / 2009 Acquired intangible assets 1, , Goodwill 4, ,879 Total 6, , ,894 EUR 000 Historical cost / 01 / 2010 Exchange differences Additions Additions from business combinations Reclassifications Disposals 31 / 12 / 2010 Acquired intangible assets Goodwill 4, ,879 Total 4, ,894 36

41 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Accumulated amortization / impairment Carrying amount 01 / 01 / 2009 Exchange differences Amortization Impairment losses Disposals 31 / 12 / / 12 / / 12 / ,770-4, , , , ,770 Accumulated amortization / impairment Carrying amount 01 / 01 / 2010 Exchange differences Amortization Impairment losses Disposals 31 / 12 / / 12 / / 12 /

42 HCI HAMMONIA SHIPPING AG Annual Report 2010 statement of changes in non-current assets Development of property, plant and equipment EUR 000 Historical cost / 01 / 2009 Exchange differences Additions Additions from business combinations Reclassifications Disposals 31 / 12 / 2009 Advance payments 22, , Seagoing vessels 432,116-15,125 49, , ,323 Total 454,532-15,125 49, ,323 EUR 000 Historical cost / 01 / 2010 Exchange differences Additions Additions from business combinations Reclassifications Disposals 31 / 12 / 2010 Advance payments Seagoing vessels 489,323 37, , ,307 Total 489,323 37, , ,307 The development of intangible assets and of property, plant and equipment is part of the notes to the consolidated financial statements. 38

43 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Accumulated amortization / impairment Carrying amount 01 / 01 / 2009 Exchange differences Amortization Impairment losses Additions Disposals 31 / 12 / / 12 / / 12 / ,416-14,670 1,186-22,258-2, , , ,446-14,670 1,186-22,258-2, , , ,862 Accumulated amortization / impairment Carrying amount 01 / 01 / 2010 Exchange differences Amortization Impairment losses Additions Disposals 31 / 12 / / 12 / / 12 / ,630-2,571-22, , , , ,693-38,630-2,571-22, , , , ,693 39

44 HCI HAMMONIA SHIPPING AG Annual Report 2010 Notes to the 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 SHIPPING 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: eleven) 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 fiscal year is the calendar year. The Group did not have own employees in the years 2010 and (1) Basis of presentation The consolidated financial statements of HCI HAMMONIA SHIPPING AG for the year ended 31 December 2010 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 fiscal year 2010 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 and 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 the 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 EUR. The figures presented in the notes to the consolidated financial statements are stated in keur (EUR 000). financial statements and consolidated management report are published in the electronic Federal Gazette (elektronischer Bundesanzeiger). (2) Consolidation (a) Principles of consolidation In addition to HCI HAMMONIA SHIPPING AG, all subsidiaries are included in the consolidated financial statements with the exception of one subsidiary considered immaterial. 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 40

45 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 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 reversed 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. Intercompany 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. a general partner was not consolidated for considerations of materiality. Please refer to note 47 for additional information on the acquisition of subsidiaries. As of 31 December 2010, 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 HCI HAMMONIA SHIPPING AG, Hamburg Subsidiary general partner Verwaltung HCI HAMMONIA Schiffahrts GmbH, Hamburg, (100 %) 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 BENJAMIN SCHULTE Shipping GmbH & Co. KG, Hamburg, (55.71 %) (b) Basis of consolidation Compared to the previous year, the basis of consolidation was expanded by one subsidiary in fiscal year 2010 due to the acquisition of a majority interest in a shipping limited partnership. Another majority interest acquired in 2010 in 41

46 HCI HAMMONIA SHIPPING AG Annual Report 2010 (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 / 2009 USD JPY (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. 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 fiscal year 2010 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. 42

47 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint (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 conducts impairment reviews for fixed assets 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 towards 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. In the previous year, impairment loss of EUR 2,888k was recognized for property, plant and equipment. 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. Due to the partial recovery of the relevant shipping markets, impairment loss was reversed in the amount of EUR 1,607k in the fiscal year. Impairment loss recognized for goodwill is not subject to reversal. Impairment reviews are made at the end of each fiscal year. The discount rate applied in the year under report 2010 for the determination of the seagoing vessels value in use comes to between 6.87 % and 7.23 % depending on the respective ship and its remaining useful life (previous year: 6.28 % to 6.67 %). The determination of the net cash flow is made on the basis of operative planning for the individual 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 pri- 43

48 HCI HAMMONIA SHIPPING AG Annual Report 2010 mary 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. Write-downs 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 fiscal year 2010 no writedowns were carried out on the basis of such assumptions (previous year: EUR 1,984k). (iii) Available-for-sale financial assets Available-for-sale financial assets include investments in subsidiaries that were not consolidated due to their immateriality. 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. 44

49 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint (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. (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 carryforward. The measurement of deferred taxes is based on the tax laws in effect at the end of the respective fiscal year and applicable to the fiscal 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 singleship 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 singleship 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 2010 on which the consolidated financial statements of HCI HAMMONIA SHIPPING AG are based is USD/ EUR (previous year: USD/EUR). Foreign exchange gains and losses resulting from these currency translations are recognized in profit or loss. 45

50 HCI HAMMONIA SHIPPING AG Annual Report 2010 (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. 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 507,318k; previous year: EUR 450,693k). 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 SHIP- PING 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 fiscal years 2009 and 2010 are subject to mandatory application by the HCI HAMMO- NIA 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 fiscal year ended 31 December 2010 for the first time: IFRIC 12: Service Concession Arrangements was released in November 2005 and is subject to mandatory application for fiscal years beginning on or after 29 March The Interpretation defines the accounting treatment of obligations and rights assumed within the framework of service concession agreements. In July 2008, IFRIC 15: Agreements for Construction of Real Estate was released, providing special regulations for the contract construction of real estate with regard to the application of IAS 11: Construction Contracts and IAS 18: Revenues. The Interpretation is subject to mandatory application for fiscal years beginning on or after 1 January In July 2008, IFRIC 16: Hedges of a Net Investment in a Foreign Operation was released. IFRIC 16 includes specific regulations for the hedging and identification of foreign currency risks. IFRIC 16 requires application for fiscal years beginning after 30 June In November 2008, IFRIC 17: Distribution of Non-cash Assets to Owners was released, including among other things regulations for the measurement of non-monetary distributions to shareholders. This Interpretation requires application for fiscal years beginning after 31 October IFRIC 18: Transfers of Assets from Customers governs the accounting treatment of a customer s asset transfers with respect to the receiving entity. IFRIC 18 requires application for fiscal years beginning after 31 October The revision of IFRS 3: Business Combinations released in January 2008 contains material changes in the application or the purchase method to business combinations, particularly changing the recognition of interests of outside investors, the disclosure of successive business acquisitions, and the treatment of conditional purchase price components and acquisition cost. The revised Standard requires application for fiscal years beginning on or after 1 July

51 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint The amendments to IAS 27: and Separate Financial Statements, relased in January 2008 as well, concern the accounting treatment of transactions involving interests in subsidiaries over which the parent retains control as well as transactions involving interests in subsidiaries resulting in the former parent s loss of control. The revised Standard requires application for fiscal years beginning on or after 1 July The amendment to IAS 39: Eligible Hedged Items Amendment to IAS 39 Financial Instruments: Recognition and Measurement carries amendments to IAS 39 with regard to the accounting treatment of hedges. The amended Standard requires application for fiscal years beginning on or after 1 July The amendments to IFRS 2: Group Cash-settled Sharebased Payment Transactions address the accounting treatment of transactions involving share-based consideration to which the controlling Group company or another Group company is committed. The amended Standard is subject to mandatory application for fiscal years beginning on or after 1 January Application of these Standards and Interpretations had no material effect on the assets and liabilities, financial position and profit and loss of the HCI HAMMONIA SHIPPING Group. The following Standards and Interpretations released by IASB or IFRIC are not subject to mandatory application, either because they have not yet been adopted by the EU or the point in time of first mandatory application has not arrived yet. Standards and Interpretations already adopted by the EU but not subject to mandatory application in fiscal year 2010 are the following: The amendment to IAS 32: Classification of Rights Issue 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. The amended Standard requires application for fiscal years beginning after 31 January 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. IFRIC 19 requires application for fiscal years beginning on or after 1 July In November 2009 the IASB passed an amendment to IAS 24: Related Party Disclosures. 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. The amended Standard requires application for fiscal years beginning on or after 1 January 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. The amendments are subject to mandatory application for fiscal years beginning on or after 1 February Application ahead of schedule is permitted. 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. Unless specified otherwise in the respective amendments, they are subject to mandatory application for fiscal years beginning on or after 1 January These regulations will be applied by the Group at the time of first mandatory application. The HCI HAMMONIA SHIP- PING 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 and loss. 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: In November 2009 the IASB released IFRS 9: Financial Instruments. IFRS 9, which governs the accounting treatment and measurement of financial assets and financial liabilities, represents the first stage of the project for replacing IAS 39, intended to take place in three stages. IFRS 9 supersedes the previous catego- 47

52 HCI HAMMONIA SHIPPING AG Annual Report 2010 ries according to which measurement is either made at fair value or amortized acquisition cost. Measurement at amortized acquisition cost requires that the entity s business model is oriented towards holding the financial asset for the generation of contractual cash flows from interest and redemption and that the cash flows provide for fixed payment dates. IFRS 9 requires application for fiscal years beginning on or after 1 January As of 7 October 2010, amendments to IFRS 7: Financial Instruments Disclosures were passed 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. In December 2010 the IASB released an amendment to IAS 12: Income Taxes. This amendment provides assistance for resolving the question whether the carrying amount of an asset is realized through use or disposal by the disputable presumption that the realization of a carrying amount usually occurs by disposal. Another release in December 2010 related to an amendment to IFRS 1: First-time Adoption of International Financial Reporting Standards, describing how to proceed with the presentation of IFRS financial statements in case that a company was temporarily not able to comply with IFRS regulations because its functional currency was exposed to severe hyperinflation. 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 and 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 statement of changes in equity. The amounts shown as of the reporting dates of reference years exclusively concern acquired intangible assets. Acquired intangible assets reported in the previous year related to the costs of the Internet presence of HCI HAM- MONIA SHIPPING AG. The capitalized amounts were amortized over an expected useful life of three years under the straight-line method. (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. EUR / 12 / / 12 / 2009 Technical equipment and machinery Seagoing vessels 503, ,824 Large class charges 3,805 4, , ,693 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 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 the 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. 48

53 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 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 amount to 25 years. The useful lives of seagoing vessels bought second-hand are estimated on the basis of the respective technical state 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. Without an adjustment of scrap values by USD 130 per ton from USD 320 per ton to USD 450 per ton, the depreciation amount would have been EUR 1,009k higher. Please refer to the consolidated statement of changes in non-current assets for information on the 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 at the end of the fiscal 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: five seagoing vessels) remained below the Group s respective carrying amounts. Impairment loss recognized for these three container ships in the previous year was therefore retained. Impairment loss recognized for two other container ships in the previous year were reversed in the total amount of EUR 1,607k. Reversal of impairment loss was reported in the income statement under the item other operating income. 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. 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 6.87 % and 7.23 % (previous year: 6.28 % to 6.67 %), 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 15k as of the reporting date exclusively relate to unconsolidated interests in subsidiaries. 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 fiscal year. (8) Other assets (non-current) In the previous year HCI HAMMONIA SHIPPING AG made an advance payment in the amount of EUR 2,600k on future service costs for the period from 1 October 2009 to 30 September An adequate discount on the service costs to incur within this period was considered for 49

54 HCI HAMMONIA SHIPPING AG Annual Report 2010 the advance payment. Deferrals stated under this item in the previous year related to the portion of the advance payment that had a remaining term to maturity of more than one year. For further information please refer to notes (12), (43), and (44). (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: EUR / 12 / / 12 / 2009 Lubricating oil 1,329 1,257 Deck equipment Machine equipment ,534 1,462 No write-downs on inventories were necessary in the fiscal 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 additional services relating to time charter agreements. The gross receivables in the amount of EUR 1,608k (previous year: EUR 2,931k) were written down in the amount of EUR 1,059k (previous year: EUR 1,984k). Valuation allowances were necessary as the risk of bad debt loss was identified in one pool (previous year: both pools) relating to receivables from one liner shipping company (previous year: two liner shipping companies). The pool management considered the receivables from one liner shipping company irrecoverable so that valuation allowances made in the previous year were used in the amount of EUR 885k. In addition to valuation allowances made in previous years, receivables were ultimately written off in the fiscal year in the amount of EUR 176k (previous year: EUR 36k). (11) Receivables from related parties Receivables reported as of 31 December 2010 result 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 (44). (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. Trade receivables generally bear no interest and have remaining terms to maturity of one year or less. 50

55 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint (13) Other assets (current) Other current assets can be broken down as follows: EUR / 12 / / 12 / 2009 Receivables from insurance companies Others Other financial assets Tax refund claims from input taxes Deferrals relating to service costs 1,055 1,256 Deferrals relating to insurance Others 71 4 Sundry assets 2,078 2,248 Other assets 2,731 2,690 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. (15) Cash and cash equivalents Cash and cash equivalents comprise balances at credit institutions and can be broken down as follows: (14) Receivables from financial derivatives The receivables from financial derivatives represent the positive current values of forward exchange transactions. For further explanations please refer to note (43). EUR / 12 / / 12 / 2009 Balances in current accounts 6,298 2,123 Term deposits 19,817 13,844 26,115 15,967 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. (16) Equity Changes relating to equity components are presented in the statement of changes in equity (a) Subscribed capital The Annual General Meeting of HCI HAMMONIA SHIP- PING AG held on 11 June 2010 passed a decrease in the share capital by way of a regular capital decrease from EUR 136,414,000 by EUR 122,772,600 to EUR 13,641,400 for the purpose of allocation to the company s capital reserve. The income from the reduction of capital in the amount of EUR 122,772, was allocated to a capital reserve in accordance with Section 272 (2) no. 4 HGB (German Commercial Code). 51

56 HCI HAMMONIA SHIPPING AG Annual Report 2010 The capital decrease is carried out by decreasing the proportionate share in the subscribed capital of all existing shares from EUR 1,000 by EUR 900 each to EUR 100. The corresponding amendment to the articles of incorporation became effective upon entry in the commercial register on 20 August After the implementation of the capital decrease, the subscribed capital consists of 136,414 no-par bearer shares with a theoretical share in the share capital of EUR each as of the reporting date (previous year: 136,414 no-par bearer shares with a theoretical share in the share capital of EUR 1, 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 the singular or repeated issue 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 exercizing this authorization. In determining the 10 % threshold, the proportionate amount of the share capital which relates to 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 Capital reserve is broken down as follows: EUR / 12 / / 12 / 2009 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 0 Issue costs for raising equity -3,864-3,864 Total capital reserve 136,544 9,772 52

57 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 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 shareholders resolution 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 SHIPPING 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 HAMMO- NIA SHIPPING 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 fiscal year, the amount of EUR 6,851k (previous year: 5,920k) previously reported as accumulated other comprehensive income was transferred to the income statement. Income recognized outside profit or loss in this equity item amounted to EUR -10,227k this fiscal year (previous year: expenses of EUR 2,694k). 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 fiscal year, income of EUR 10,955k (previous year: expenses of EUR 5,228k) from such currency translations were recognized outside profit or loss. (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: 53

58 HCI HAMMONIA SHIPPING AG Annual Report 2010 Face amount USD 000 / JPY 000 Sheduled repayment p. a. USD 000 / JPY 000 Availment as of 31 / 12 / 2010 Availment as of 31 / 12 / 2009 USD 000 / JPY 000 EUR 000 USD 000 EUR 000 MS HAMMONIA BAVARIA 25,983 1,614 24,369 18,237 25,176 17,476 Interest rate Term to maturity USD-LIBOR + margin 3 January , ,924 5,930 8,292 5,756 CIRR 4 January 2021 MS HAMMONIA ROMA 16, ,503 11,602 15,917 11,049 USD-LIBOR + margin 3 January ,248 1,383 14,865 11,125 15,556 10,798 CIRR 5 January 2021 MS HAMMONIA DANIA 60,750 6,231 46,730 34,972 52,961 36,763 USD-LIBOR + margin 30 May , ,000 8,981 12,000 8,330 USD-LIBOR + margin 31 May 2018 MS HAMMONIA FIONIA 60,750 6,231 46,730 34,972 52,961 36,763 USD-LIBOR + margin 30 May , ,000 8,981 12,000 8,330 USD-LIBOR + margin 31 May 2018 MS HAMMONIA HAFNIA 60,750 6,231 46,730 34,972 52,961 36,763 USD-LIBOR + margin 30 May , ,000 8,981 12,000 8,330 USD-LIBOR + margin 31 May 2018 MS SAXONIA 30,000 2,072 26,374 19,738 26,374 18,308 USD-LIBOR + margin USD-LIBOR + margin 31 December February 2021 MS WESTPHALIA 30,000 2,308 26,538 19,861 26,538 18,421 MS HAMMONIA USD-LIBOR + TEUTONICA 16, ,878 11,135 15,295 10,617 margin 6 June ,975 1,360 13,596 10,175 14,275 9,909 CIRR 6 June 2020 MS HAMMONIA MASSILIA 16, ,165 11,349 15,794 10,963 USD-LIBOR + margin 16,058 1,367 14,008 10,483 15,033 10,435 CIRR MS HAMMONIA HOLSATIA 16, ,612 10,936 15,235 10, October October 2020 USD-LIBOR + margin 21 May ,912 1,354 13,204 9,881 14,219 9,870 CIRR 21 May 2020 MS HAMMONIA POMERENIA 24,690 1,534 20,855 15,607 22,005 15,275 USD-LIBOR + margin 8, ,479 4,849 7,004 4,862 CIRR MS BENJAMIN SCHULTE 39,200 2,920 36,280 27, JPY 732,690 0 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 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 507,867k (previous year: EUR 451,640k). Of this total amount, EUR 507,318k (previous year: EUR 450,693k) relate to carrying amounts of the mortgaged seagoing vessels and EUR 549k (previous year: EUR 947k) relate to trade receivables. 54

59 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint The non-current financial liabilities remaining terms to maturity are as follows: EUR / 12 / / 12 / 2009 Remaining terms between 1 and 5 years 116,924 97,892 Remaining terms of more than 5 years 181, ,920 Total 297, ,812 (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, once or several times 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 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 75,000,000 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 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 the net income, the 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 the 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 majority 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. Apart from that, 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. 55

60 HCI HAMMONIA SHIPPING AG Annual Report 2010 (19) Liabilities from financial derivatives (non-current) The remaining terms to maturity of financial derivatives are as follows: 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 (43). EUR / 12 / / 12 / 2009 Remaining terms between 1 and 5 years 8,272 3,618 Remaining terms of more than 5 years 1,299 1,575 Total 9,571 5,193 (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: EUR / 12 / / 12 / 2009 Non-controlling interests in limited liability capital 11,647 2,939 Interests in earnings -4, Special withdrawal accounts Interests in hidden reserves /liabilities -1, ,363 2,964 As in the previous year non-controlling interests in consolidated earnings were recognized in interest income. The remaining terms to maturity of non-controlling interests in equity are as follows: EUR / 12 / / 12 / 2009 Remaining terms of less than 1 year Remaining terms between 1 and 5 years 0 0 Remaining terms of more than 5 years 3,889 2,939 Total 4,363 2,964 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. 56

61 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint (21) Financial liabilities (current) Current financial liabilities can be broken down as follows: EUR / 12 / / 12 / 2009 Ship mortgage loans 37,029 21,951 Overdraft facilities 7,878 7,307 Deferred interest 1,111 1,037 46,018 30,295 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 1,552k (previous year: EUR 993k) all have remaining terms to maturity of one year or less. The statement includes deferrals in the amount of EUR 1,044k (previons year: EUR 679k). (23) Liabilities to related parties Liabilities to related individuals and companies can be broken down as follows: EUR / 12 / / 12 / 2009 Liabilities to contractual ship operating company and companies subject to its control Liabilities to unconsolidated affiliates 87 0 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 EUR 529k) and liabilities from corporation taxes and solidarity surcharge in the amount of EUR 3k (previous year: EUR 6k). These liabilities have remaining terms to maturity of one year or less. Current income tax liabilities include liabilities from municipal trade taxes in the amount of EUR 270k (previous year: 57

62 HCI HAMMONIA SHIPPING AG Annual Report 2010 (25) Other liabilities (current) Other current liabilities can be broken down as follows: EUR / 12 / / 12 / 2009 Liabilities to non-controlling shareholders Reimbursement obligations Debtors with credit balances Deferred income Miscellaneous tax liabilities 5 5 Other miscellaneous liabilities 2 8 1, Reimbursement obligations reported as of the end of 2009 result from excess payments. The liabilities have remaining terms to maturity of one year or less. (26) Liabilities from financial derivatives (current) Notes to the consolidated income statement (27) Revenues This item states the shipping companies charter revenues that can be broken down as follows: Current liabilities from financial derivatives exclusively relate to current values of obligations resulting from interest rate swap transactions, designated as a part of hedges. Please also refer to note (43) for additional information. EUR Pool charter 28,536 30,457 Time charter 34,111 31,797 62,647 62,254 Revenues from pool charters include one-off revenues from the restructuring of liner shipping companies CSAV and CCNI in the amount of EUR 5,455k. 58

63 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint (28) Vessel operating costs Vessel operating costs can be broken down as follows: EUR Costs for repair and equipment 3,073 2,108 Ship operating fees, commissions 2,909 2,905 Costs for ship personnel 8,921 8,499 Lubricating oil and grease used 2,040 1,938 Fuels used Insurance 2,339 2,284 Miscellaneous costs 1, ,718 19,615 (29) Other operating income Other operating income can be broken down as follows: EUR Gains from the recognition of a negative difference from first-time consolidation 51 0 Forward exchange transaction gains Other gains on exchange 1, Reimbursement from charterers Reimbursement of costs for crane dismantling/erection Proceeds from the sale of fuel Write-ups on property, plant and equipment 1,607 0 Miscellaneous ,745 1,844 Gains from the recognition of a negative difference result from the first-time consolidation of MS "BENJAMIN SCHULTE" Shipping GmbH & Co. KG. 59

64 HCI HAMMONIA SHIPPING AG Annual Report 2010 (30) Other operating expenses Other operating expenses can be broken down as follows: EUR Legal, audit and consultancy fees Costs relating to the acquisition of subsidiaries Forward exchange transaction losses 33 0 Other losses on exchange 464 1,053 Costs related to the commencement of operations at single-ship companies Fees from controlling and administrative services and other services 1,500 1,526 Bad debt loss Other administrative expenses ,207 3,900 (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: EUR Amortization of intangible assets 4 5 Depreciation of property, plant and equipment 22,396 22,258 22,400 22,263 (32) Impairment Impairment loss and valuation allowances relate to the following items in the statement of financial position: EUR Goodwill 0 0 Property, plant and equipment 0 2,888 Trade receivables 0 1, ,872 Cf. note (6) (property, plant and equipment) and note (10) (trade receivables). 60

65 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint (33) Interest income This item can be broken down as follows: EUR Interest income from short-term deposits Other interest income Total interest income (34) Interest expenses Interest expenses essentially result from financing the seagoing vessels and can be broken down as follows: EUR Interest expense for ship mortgage loans 9,459 10,154 Interest expense for interest rate swaps 6,852 5,920 Other interest expenses Total interest expenses 16,472 16,169 (35) Income taxes Taxes paid or owed on income as well as deferred taxes are recognized as income taxes. Income taxes comprise trade taxes, corporation taxes, and solidarity surcharge. Income tax expenses can be broken down by origin as follows: EUR Current income tax expense Deferred income tax expense / income Current income tax expense relates to municipal trade taxes of single-ship limited partnerships in the amount of EUR 86k (previous year: EUR 357k). 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: 61

66 HCI HAMMONIA SHIPPING AG Annual Report 2010 EUR IFRS earnings before income taxes 4,834-2,752 Group tax rate in % Expected tax expense 1, Deviations due to tonnage taxation -1,099 1,730 Non-usable tax loss carry-forward Others 4 5 Tax expense/income as reported in the income statement Permanent differences include the effects of non-controlling interests in 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 8,924k (previous year: EUR 7,657k) and for trade tax purposes in the amount of EUR 10,090k (previous year: EUR 8,380k), no deferred tax assets were recognized in the fiscal 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. (36) 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: net income / loss for the year attributable to owners of the parent EUR 000 4,834-2,752 Weighted average number of issued shares number 136, ,414 net income / loss for the year attributable to owners of the parent per share EUR

67 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Notes to the consolidated statement of cash flows (37) Basic information The statement of cash flows distinguishes between cash flows from operating, investing and financing activities. (38) Analysis of cash and cash equivalents Cash and cash equivalents reported in the cash flow statement correspond to the same item reported in the statement of financial position. Cash equivalents are term deposits with original terms to maturity of only a few days. (39) Explanation of cash flows The cash flow from operating activities is determined in application of the indirect method. It amounts to EUR 29,382k (previous year: EUR 22,457k). Cash flows from investing and financing activities are determined according to the direct method. (40) Non-cash business transactions During the current fiscal 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 7,450k by means of the issue of a profit participation right The Group acquired a limited partner s share in MS BENJAMIN SCHULTE Shipping GmbH & Co. KG in the amount of EUR 7,450k by means of the conversion of a loan into limited liability capital (41) Other information on the statement of cash flows As a result of a waiver agreement with a bank consortium (cf. note (43) (a) (iv)), 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. The subsidiaries involved have unrestricted disposal of their respective cash balances. The agreement concerns cash in the total amount of EUR 7,297k (previous year: EUR 6,156k). As of the reporting date, unchanged from the precious year, the Group has unused overdraft facilities of EUR 0.7 million at its disposal. Notes on segment reporting (42) 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. Target-actual 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: 63

68 HCI HAMMONIA SHIPPING AG Annual Report 2010 From chartering out container ships to third-party liner shipping companies, the Group generated revenues in the amount of EUR 62,647k in the fiscal year (previous year: EUR 62,254k). For each of the Group s 12 (previous year: 11) vessels there are separate charter agreements with liner shipping companies. However, the Group has joined so-called 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 34,111k (previous year: EUR 31,797k) were generated from 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. Unchanged from the previous year, the Group s property, plant and equipment in the amount of EUR 507,318k (previous year: EUR 450,693k) 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. 54 % (previous year: 51 %) of the revenues were generated with a single client. This client is the world s largest liner shipping company for container vessels. Other disclosures (43) 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. 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 / 2010 EUR 000 Carrying amount of 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, ,

69 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Assets 31 / 12 / 2009 EUR 000 Carrying amount of Statement of financial position AFV AFS LAR NFA Non-current assets Intangible assets Property, plant and equipment 450, ,693 Investments Other assets 1, ,055 Current assets Inventories 1, ,462 Trade receivables Receivables from related parties Income tax receivables Other assets 2, ,248 Receivables from financial derivatives Cash and cash equivalents 15, ,967 0 Equity and liabilities 31 / 12 / 2010 EUR 000 Carrying amount of Statement of financial position LAC DS NFL Non-current liabilities Financial liabilities 297, , Profit participation capital 7,339 7, Liabilities from financial derivatives 9, ,571 Non-controlling interests in equity 4,363 4, Current liabilities 0 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, ,

70 HCI HAMMONIA SHIPPING AG Annual Report 2010 Equity and liabilities 31 / 12 / 2009 EUR 000 Carrying amount of Statement of financial position LAC DS NFL Non-current liabilities Financial liabilities 275, , Liabilities from financial derivatives 5, ,193 0 Non-controlling interests in equity 2,964 2, Other liabilities Current liabilities Financial liabilities 30,296 30, Trade payables Liabilities to related parties Income tax liabilities Other liabilities Liabilities from financial derivatives 5, ,584 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. There were no reclassifications between the categories of financial instruments in the fiscal year. The following table contrasts carrying amounts with fair values for each category of financial assets and financial liabilities: 66

71 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint IAS 39 category or IFRS 31 / 12 / 2010 Carrying 31 / 12 / / 12 / / 12 / 2009 Carrying 31 / 12 / 2009 EUR class amount Fair value amount Fair value Non-current assets Investments AFS Current assets Trade receivables LAR Receivables from related parties LAR Other assets LAR Receivables from financial derivatives AFV Cash and cash equivalents LAR 26,116 26,116 15,967 15,967 Non-current liabilities Financial liabilities LAC 297, , , ,136 Profit participation capital LAC 7,339 7, Liabilities from financial derivatives DS 9,571 9,571 5,193 5,193 Non-controlling interests in equity LAC 4,363 4,363 2,964 2,964 Current liabilities Financial liabilities LAC 46,018 47,154 30,296 31,093 Trade payables LAC 1,553 1, Liabilities to related parties LAC Other liabilities LAC Liabilities from financial derivatives DS 6,127 6,127 5,584 5,584 Aggregated according to classes / categories Available-for-sale financial assets AFS Loans and receivables LAR 27,302 27,302 17,356 17,356 Financial assets at fair value through profit and loss AFV Financial liabilities measured at amortized cost LAC 358, , , ,508 Derivates in hedging relationships DS 15,698 15,698 10,777 10,777 With regard to unlisted 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 unlisted 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. 67

72 HCI HAMMONIA SHIPPING AG Annual Report 2010 As of 31 December 2010 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 / 2010 EUR 000 Total Level 1 Level 2 Level 3 Financial assets Receivables from financial derivatives Fair-value measurement as of 31 / 12 / 2010 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 As of 31 December 2009, the following attribution applies: Fair-value measurement as of 31 / 12 / 2009 EUR 000 Total Level 1 Level 2 Level 3 Financial assets Receivables from financial derivatives Fair-value measurement as of 31 / 12 / 2009 EUR 000 Total Level 1 Level 2 Level 3 Financial liabilities Non-current liabilities Liabilities from financial derivatives 5, ,193 0 Current liabilities Liabilities from financial derivatives 5, ,

73 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Net results from financial instruments are allocated to the separate classes or categories of IAS 39 as follows: EUR 000 Net gains / Net losses At fair value 2010 From subsequent measurement 2009 From subsequent measurement Currency translation Valuation allowances Total At fair value From disposals Currency translation Valuation allowances From disposals Financial assets at fair value through profit or loss (AFV) Loans and receivables (LAR) , ,531 Financial liabilities measured at amortized cost (LAC) Total 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. 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 fiscal years: EUR Interest income Interest expenses 16,472 16,169 Income and expenses relating to fees and commission not included in the calculation of the effective interest rate apply neither for this fiscal year nor the previous one. In the past fiscal 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 SHIP- PING 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. 69

74 HCI HAMMONIA SHIPPING AG Annual Report 2010 Face amounts and fair values of interest and currency derivatives can be broken down as follows: 31 / 12 / / 12 / 2009 EUR 000 Face amount Fair value Face amount Fair value Assets Currency derivatives 1, Interest derivatives Total 1, Liabilities Currency derivatives Interest derivatives 196,532-15, ,113-10,777 Total 196,532-15, ,113-10,777 (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). As of 31 December 2010 the following material hedging relationships meet the requirements of IAS 39 for the disclosure as cash flow hedges: 70

75 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint As of 31 December 2009 the following material hedging relationships met the requirements of IAS 39 for the disclosure as cash flow hedges: MS HAMMONIA ROMA MS HAMMONIA TEUTONICA MS HAMMONIA MASSILIA MS HAMMONIA HOLSATIA MS HAMMONIA BAVARIA MS HAMMONIA POMERENIA MS SAXONIA MS WESTPHALIA MS HAMMONIA DANIA MS HAMMONIA FIONIA MS HAMMONIA HAFNIA MS BENJAMIN SCHULTE MS BENJAMIN SCHULTE MS BENJAMIN SCHULTE Disbursement 31 / 12 / 2010 USD 000 / JPY ,000 USD 10,000 USD 10,000 USD 10,000 USD 16,246 USD 13,903 USD 26,374 USD 26,538 USD 52,730 USD 52,730 USD 56,480 USD 6,500 USD 8,000 USD 732,690 JPY Hedged item Interest rate Maturity USD-LIBOR + margin 30 / 01 / 2015 USD-LIBOR + margin 12 / 01 / 2015 USD-LIBOR + margin 10 / 01 / 2012 USD-LIBOR + margin 12 / 01 / 2015 USD-LIBOR + margin 03 / 01 / 2023 USD-LIBOR + margin 29 / 11 / 2021 USD-LIBOR + margin 31 / 12 / 2019 USD-LIBOR + margin 28 / 02 / 2021 USD-LIBOR + margin 30 / 05 / 2018 USD-LIBOR + margin 30 / 05 / 2018 USD-LIBOR + margin 30 / 05 / 2018 USD-LIBOR + margin 30 / 04 / 2023 USD-LIBOR + margin 30 / 04 / 2023 JPY-LIBOR + margin 30 / 10 / 2024 Face amount 31 / 12 / 2010 USD 000 / JPY 000 Interest rate % Current value EUR ,000 USD ,000 USD ,000 USD ,000 USD ,740 USD ,693 USD ,892 USD ,827 USD ,730 USD 52,730 USD , ,483 55,500 USD ,262 6,500 USD ,000 USD ,690 JPY ,698 Hedge Type Term to maturity Beginning End Interest rate swap 30 / 01 / / 01 / 2015 Interest rate swap 12 / 01 / / 01 / 2015 Interest rate swap 12 / 01 / / 01 / 2012 Interest rate swap 02 / 04 / / 01 / 2015 Interest rate swap 04 / 10 / / 01 / 2015 Interest rate swap 29 / 08 / / 08 / 2011 Interest rate swap 30 / 09 / / 12 / 2014 Interest rate swap 29 / 08 / / 08 / 2011 Interest rate swap 30 / 05 / / 05 / 2018 Interest rate swap 30 / 05 / / 05 / 2018 Interest rate swap 30 / 05 / / 05 / 2013 Interest rate swap 30 / 04 / / 04 / 2011 Interest rate swap 30 / 04 / / 04 / 2013 Interest rate swap 03 / 08 / / 08 /

76 HCI HAMMONIA SHIPPING AG Annual Report 2010 As of 31 December 2009 the following material hedging relationships met the requirements of IAS 39 for the disclosure as cash flow hedges: Hedged item Hedge Disbursement 31 / 12 / 2009 USD ,000 10,000 10,000 10,000 16,784 14,670 26,374 26,538 58,961 58,961 62,711 Interest rate Maturity Face amount 31 / 12 / 2009 USD 000 Interest rate % Current value EUR 000 USD-LIBOR + margin 30 / 01 / , USD-LIBOR + margin 12 / 01 / , USD-LIBOR + margin 10 / 01 / , USD-LIBOR + margin 12 / 01 / , USD-LIBOR + margin 03 / 01 / , USD-LIBOR + margin 29 / 11 / , USD-LIBOR + margin 31 / 12 / , USD-LIBOR + margin 28 / 02 / , USD-LIBOR + margin 30 / 05 / , ,796 USD-LIBOR + margin 30 / 05 / , ,906 USD-LIBOR + margin 30 / 05 / , ,644-10,777 Type Term to maturity Beginning End Interest rate swap 30 / 01 / / 01 / 2015 Interest rate swap 12 / 01 / / 01 / 2015 Interest rate swap 12 / 01 / / 01 / 2012 Interest rate swap 02 / 04 / / 01 / 2015 Interest rate swap 02 / 01 / / 01 / 2012 Interest rate swap 29 / 08 / / 08 / 2011 Interest rate swap 31 / 12 / / 12 / 2011 Interest rate swap 29 / 08 / / 08 / 2011 Interest rate swap 30 / 05 / / 05 / 2018 Interest rate swap 30 / 05 / / 05 / 2018 Interest rate swap 30 / 05 / / 05 / 2013 Current values of interest rate swaps are determined according to the mark-to-market method. Measurements are based on interest yields of approx. 0.8 % (1 year; previous year: 1.0 %), approx. 0.8 % (2 years; previous year: 1.4 %), approx. 2.2 % (5 years; previous year: 3.0 %), up to approx. 3.4 % (10 years; previous year: 4.0 %). In the fiscal year changes in fair value of interest rate swaps were recognized outside profit or loss in equity in the amount of EUR -10,227k (previous year: EUR 8,814k). EUR 6,851k (previous year: EUR 5,920k) were transferred from equity to the income statement ( interest expenses ) in the fiscal 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 fiscal year 2009 the Group came to an agreement with a bank consortium on alleged violations of contractual obligations with respect to individual ship mortgage loans. In fiscal year 2010 this agreement was extended for another year under the same conditions. Contrary to HCI HAMMONIA SHIPPING AG and three subsidiaries involved, a bank consortium holds the view that obligations under loan agreements (loan-to-value ratio) have been violated. In order to avoid a potential legal dispute with an important financing partner, the Group 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 next twelve months. 72

77 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Apart from an increased credit margin, the agreement stipulates 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. The updated term of the agreement extends from 1 October 2010 to 30 September Due to the increased margin, additional interest expenses in the amount of roughly USD 1.5 million will incur for the Group in this period. In agreement with the respective financing credit institutions, the Group deferred four redemption payments each relating to two ship mortgage loans (tolerated deferments) in fiscal year 2010 (2009: one redemption payment each). The deferred payments amount to altogether EUR 4,097k as of the end of the fiscal year (previous year: EUR 760k). The loans affected by the deferred redemption payments were valued at altogether EUR 39,599k (previous year: EUR 36,729k) as of 31 December 2010, including the deferred instalments. The Group intends to defer 8 payments altogether on each loan. Final agreements on the deferment of 8 payments each had not been concluded with the respective financing banks by the time of the preparation of the consolidated financial statements. With respect to one loan in the amount of EUR 19,738k (previous year: EUR 18,308k), the credit institution used the deferred payment as an opportunity to raise the credit margin for the entire loan. With respect to the other ship mortgage loan, the credit institution merely imposed increased default interest on the outstanding redemption payments of EUR 2,159k as of the reporting date (previous year: EUR 401k) and left the credit conditions otherwise unchanged. With respect to six other ship mortgage loans, the Group deferred between one and two redemption payments in agreement with the respective financing credit institutions in fiscal year 2010 (tolerated deferments). The deferred payments amount to altogether EUR 3,768k as of the end of the fiscal year. The loans affected by the deferred redemption payments were valued at altogether EUR 131,310k as of 31 December 2010, including the deferred instalments. On 31 January 2011 the Group came to an agreement with the financing credit institutions on the deferment of four redemption payments each over the years 2010 and In fiscal year 2010 between one and two redemption payments were deferred already with respect to the individual shipping companies so that in 2011 between two and three more redemption payments can be deferred with respect to the individual shipping companies. The agreement essentially includes an increase of the interest margin by 0.75 % with respect to these six ship mortgage loans and the corresponding overdraft facilities. (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. 73

78 HCI HAMMONIA SHIPPING AG Annual Report 2010 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 HAM- MONIA 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 SHIPPING 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. In order to contain these risks, the Group generally applies currency hedges. 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 as of 31 December 2010 and 31 December 2009 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 EUR 000 % USD 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 purchase 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 EUR 000 Basis points Adjustment of the interest level ,903 2, ,708-2,873 Due to the low interest level prevailing in fiscal year 2010 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. 74

79 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint (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. Changes in valuation allowances made for trade receivables are as follows: EUR January 1,984 0 Exchange rate difference Appropriation 0 1,984 Utilization Releases December 1,059 1,984 Criteria 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. The valuation allowances made relate to receivables from charterers that were fully 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: EUR / 12 / / 12 / 2009 Trade receivables Receivables from related parties 9 0 Other financial assets Receivables from financial derivatives Cash and cash equivalents 26,116 15,967 Maximum default risk 27,470 17,368 Trade receivables are for the most part receivables from pool arrangements and liner shipping companies. They are not hedged by any special instruments. Bank deposits are held only at partners with impeccable credit ratings. 75

80 HCI HAMMONIA SHIPPING AG Annual Report 2010 Financial assets that were not impaired but overdue as of the reporting date can be broken down as follows: EUR 000 Trade receivables Carrying amount thereof: neither impaired nor overdue as of the reporting date Less than 30 days thereof: not impaired as of the reporting date and overdue in the following time bands Between 30 and 60 days Between 61 and 90 days Between 91 and 180 days Between 180 and 360 days More than 360 days 31 December December Receivables from related parties 31 December December Other financial assets 31 December 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: 76

81 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Carrying amount EUR / 12 / 2010 Interest Primary financial liabilities Financial liabilities 343,991 8,531 46,309 26, ,866 14, ,426 Profit participation capital 7, ,095 7, Non-controlling interests 4, ,889 Trade payables 1, , Liabilities to related parties Other liabilities Derivative financial liabilities Derivatives in hedging relationships 15,698 6, , ,518 0 Included were all instruments held as of 31 December 2010 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 the 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 attributed to the narrowest time band. The corresponding data as of 31 December 2009 follow in the next table: Carrying amount Cashflows up to 1 year Repayment Cashflows 1 to 5 years Repayment Interest Cashflows more than 5 years Repayment Interest Cashflows up to 1 year Repayment Cashflows 1 to 5 years Repayment Interest Cashflows more than 5 years Repayment Interest EUR / 12 / 2009 Interest Primary financial liabilities Financial liabilities 306,109 8,920 30,591 28,293 98,937 17, ,395 Non-controlling interests in equity 2, ,939 Trade payables Liabilities to related parties Other liabilities Derivative financial liabilities Liabilities from financial derivatives Derivatives in hedging relationships 10,777 5, , ,

82 HCI HAMMONIA SHIPPING AG Annual Report 2010 (iv) Capital management The capital management of the HCI HAMMONIA SHIPPING Group is primarily oriented towards maintaining a strong equity base. The Management Board regularly reviews net in- debtedness. The following table presents shareholders equity, equity-to-assets ratio, and net financial indebtedness: 31 / 12 / / 12 / 2009 Change Equity in EUR , ,122 12,412 Equity-to-assets ratio in % Net financial indebtedness / Net financial surplus in EUR , ,142-27,733 Net financial indebtedness is calculated as the difference between financial liabilities and cash and cash equivalents. The increase in net financial indebtedness compared to the previous year essentially results from the first-time consolidation of MS BENJAMIN SCHULTE Shipping GmbH & Co. KG including the loans taken out and the profit participation capital for financing this investment. The objectives of capital management were considered achieved in the years of comparison. Furthermore, the capital management of the HCI HAMMO- NIA 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 fiscal year 2009 the Group s parent had distributed a dividend in the total amount of EUR 2,728k to its shareholders. This equals a dividend yield of 1.82 %, referring to the share capital and capital reserve of HCI HAMMONIA SHIPPING AG. For the medium term the Management Board aims at a dividend yield of 6.5 %. 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. (44) Operating leases 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 long-term 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 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 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: The charter transactions recorded under the item revenues involve so-called operating leases in accordance with IAS Minimum lease rates EUR 000 Up to 1 year 1 to 5 years > 5 years Total 55, ,668 70, ,690 (previous year) 47, ,112 96, ,891 78

83 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Charter agreements are concluded at customary 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 62,647k from operating leases in the fiscal year (previous year: EUR 62,254k). (45) Other financial obligations As of the reporting date there are other financial obligations of EUR 1,614k (previous year: EUR 1,553k) per year arising from the agreement for consultancy and other services concluded with HAMMONIA Reederei GmbH & Co. KG, Hamburg (until 30 September 2009: HCI Hanseatische Schiffsconsult GmbH). These are determined on the basis of an annual rate of 1.0 % of the respective equity capital of HCI HAMMONIA SHIPPING AG. The contract has a remaining term of 16.5 years as of the reporting date. Including advance payments, the sum of financial obligations thus amounts to EUR 25,415k as of the reporting date. (46) Related party disclosures (a) Basic information In accordance with IAS 24, related parties of the HCI HAM- MONIA 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 Hanseatische Schiffsconsult GmbH is also a member of the Management Board of HCI HAMMONIA SHIPPING AG. HCI Hanseatische Schiffsconsult GmbH and its affiliates of the HCI Group are therefore considered related parties. 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 ) is managing director of the general partner of MS BENJAMIN SCHULTE Shipping GmbH & Co. KG acquired in the year Atlantic and its affiliates are therefore considered related parties. The majority interest in Beteiligung MS BENJAMIN SCHULTE Verwaltung GmbH acquired in the year 2010 was not consolidated for considerations of materiality. Business transactions involving this affiliate are therefore disclosed in the following. Moreover, 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 HAMMO- NIA 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 Hanseatische Schiffsconsult GmbH The following business relationships existed with HCI Hanseatische Schiffsconsult GmbH and its affiliates in the years of comparison: Income statement (in EUR 000) Other operating expenses 0 1,151 79

84 HCI HAMMONIA SHIPPING AG Annual Report 2010 HCI HAMMONIA SHIPPING AG had concluded an agreement with HCI Hanseatische Schiffsconsult GmbH 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 Hanseatische Schiffsconsult GmbH 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 any applicable sales tax. The payment was due in proportionate amounts at the end of each quarter on the basis of the company s equity as of the end of the preceding quarter as reported for that quarter in the respective interim financial statements. Effective 1 October 2009, HCI Hanseatische Schiffsconsult GmbH assigned its rights under said agreement to HAMMONIA Reederei GmbH & Co. KG. HCI Hanseatische Schiffsconsult GmbH 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 Hanseatische Schiffsconsult GmbH 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 HAMMO- NIA Reederei GmbH & Co. KG and its affiliates in the years of comparison: Statement of financial position (in EUR 000) 31 / 12 / / 12 / 2009 Receivables from HAMMONIA Reederei GmbH & Co. KG and its affiliates 10 0 Liabilities to HAMMONIA Reederei GmbH & Co. KG and its affiliates Income statement (in EUR 000) Vessel operating costs (operating fees) 2,568 2,585 Other operating expenses (organization cost) Other operating expenses (service fee) 1, HCI HAMMONIA SHIPPING AG concluded an agreement with HAMMONIA Reederei GmbH & Co. KG on cooperation on 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 singleship 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, HAM- MONIA 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 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 80

85 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 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 Hanseatische Schiffsconsult GmbH. HCI Hanseatische Schiffsconsult GmbH 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 Hanseatische Schiffsconsult GmbH. Please refer to note (46) (b) for details of the service agreement. As of 1 October 2009, HCI HAMMONIA SHIPPING AG made an advance payment in the amount of EUR 2,600k for eight quarters, i.e. extending to 30 September The advance payment includes a considerable interest advantage of at least 10 % (the exact amount is dependent on the equity of HCI HAMMONIA SHIPPING AG as of the end of the respective preceding quarter). HAMMONIA Reederei GmbH & Co. KG received a financing intermediation fee of EUR 200k or rather EUR 100k per loan agreement for the intermediation of low-interest CEXIM financing for the purchases of the seagoing vessels MS HAMMONIA Bavaria, MS HAMMONIA HOLSATIA, MS HAMMONIA MASSILIA, MS HAMMONIA ROMA, MS HAMMONIA TEUTONICA, and MS HAMMONIA POME- RENIA. In the previous year HAMMONIA Reederei GmbH & Co. KG received total commission of EUR 300k, to be amortized over the terms of the loan agreements. In the years of comparison, the Group made the following payments or advance payments for new ships to subsidiaries of HAMMONIA Reederei GmbH & Co. KG: Purchase prices Seagoing vessel USD 000 EUR 000 USD 000 EUR 000 MS BAVARIA ,540 2,731 MS ROMA , (d) Relationships with Beteiligung MS BENJAMIN SCHULTE Shipping GmbH According to Section 6 of the articles of association of MS BENJAMIN SCHULTE Shipping GmbH & Co. KG, Beteiligung MS BENJAMIN SCHULTE Shipping GmbH is entitled to a preference share of 20 % in any excess profits. As of the reporting date liabilities are stated in the amount of EUR 87k relating to the year (e) Relationships with ATLANTIC Gesellschaft zur Vermittlung internationaler Beteiligungen mbh & Co. KG As of the reporting date there were obligations to Atlantic in the amount of EUR 151k, resulting from placement fees and similar expenses. 81

86 HCI HAMMONIA SHIPPING AG Annual Report 2010 (f) Related persons Statement of financial position (in EUR 000) 31 / 12 / / 12 / 2009 Liabilities to corporate bodies of the HCI HAMMONIA SHIPPING Group 5 5 Income statement (in EUR 000) Other operating expenses 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 fiscal year 2010 amounts to EUR 18k (previous year: EUR 18k). The Management Board did not receive any remuneration in fiscal years 2010 and Moreover, above-mentioned persons were neither granted advances nor loans, nor did contingencies exist in favor of these persons. (47) Acquisition of subsidiaries (a) Acquired subsidiaries The Group acquired the following subsidiaries in fiscal year 2010: Acquired subsidiaries MS BENJAMIN SCHULTE" Shipping GmbH & Co. KG Beteiligung MS BENJAMIN SCHULTE" Shipping GmbH Main activity Date of acquisition Acquired interest Acquisition cost in EUR 000 Operation of a container vessel 29 / 12 / % 8,933 Assumption of general partner position 29 / 12 / % 14 The majority interest in MS "BENJAMIN SCHULTE" Shipping GmbH & Co. KG and its general partner was acquired with the objective of expanding the Group s activities with regard to container shipping. For considerations of materiality, the interest in Beteiligung MS "BENJAMIN SCHULTE" Shipping GmbH was not consolidated. (b) Transferred consideration For the acquisition of the subsidiaries the following considerations were transferred: Transferred consideration MS "BENJAMIN SCHULTE" Shipping GmbH & Co. KG Beteiligung MS "BENJAMIN SCHULTE" Shipping GmbH Cash and cash equivalents 1, Plus conversion of a liability into limited liability capital 7,450 0 Total 8,

87 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 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 for the preliminary financing of the equity of MS "BENJAMIN SCHULTE" Shipping GmbH & Co. KG yet to be placed. Effective 30 December 2010, the loan was converted into limited liability capital (debt-to-equity swap). A lump-sum reimbursement of costs in the amount of EUR 160k paid to an issuing house in the context of the acquisition was excluded from the transferred consideration, charged to expenses in the fiscal year, and reported as part of other operating expenses in the consolidated income statement. (c) Acquired assets and liabilities The following table shows the acquired assets and liabilities relating to first-time consolidated MS BENJAMIN SCHULTE Shipping GmbH & Co. KG, recognized as of acquisition date: MS "BENJAMIN SCHULTE" EUR 000 Shipping GmbH & Co. KG Non-current assets Property, plant and equipment 42,509 Investments 1 Current assets Inventories 94 Trade receivables 51 Other current assets 526 Receivables from financial derivatives 143 Cash and cash equivalents 2,713 Non-current liabilities Financial liabilities -31,652 Financial derivatives -472 Current liabilities Tax liabilities -97 Financial liabilities -2,275 Financial derivatives -468 Trade payables -272 Other liabilities ,111 (d) Non-controlling interests The non-controlling interests (44.29 % of the limited partner s share in MS "BENJAMIN SCHULTE" Shipping GmbH & Co. KG) were recognized as of the date of acquisition and measured at EUR 1,287k 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 non-controlling interests are included as borrowed capital under the item non-controlling interests in equity. 83

88 HCI HAMMONIA SHIPPING AG Annual Report 2010 (e) Negative difference due to the acquisition The negative difference resulting from the acquisition is determined as follows: MS "BENJAMIN SCHULTE" EUR 000 Shipping GmbH & Co. KG Transferred consideration 8,773 Plus non-controlling interests (44.29 %) 1,287 Less fair value of identified acquired net assets -10,111 Negative difference due to the acquisition -51 The negative difference resulting from the acquisition of the interest in MS "BENJAMIN SCHULTE" Shipping GmbH & Co. KG was subjected to a reassessment and recognized as income in fiscal year 2010 (item other operating income ). (f) Net cash outflow due to the acquisition The following net cash inflow resulted from the acquisition of the two subsidiaries: EUR / 12 / / 12 / 2009 Consideration paid in cash 1,337 0 Less acquired cash and cash equivalents -2,713 0 Net cash inflow due to the acquisition -1,376 0 (g) Effect of the acquisition on the Group s earnings As the acquisition of both subsidiaries was wade right before the reporting date, the net income does not include additional earnings from the business generated by MS "BENJAMIN SCHULTE" Shipping GmbH & Co. KG. For the same reason, revenues do not contain any revenues attributable to MS "BENJAMIN SCHULTE" Shipping GmbH & Co. KG. If the business combination had taken place as of 1 January 2010, the Group s revenues would have come to EUR 70,168k and the net income would have been EUR 4,589k. In determining the Group s pro forma revenues and net income under the assumption that MS "BENJA- MIN SCHULTE" Shipping GmbH & Co. KG would have been acquired at the beginning of the reporting period, the management eliminated organization cost (placement fees, etc.) incurred at MS "BENJAMIN SCHULTE" Shipping GmbH & Co. KG as one-off costs and applied depreciation of the acquired seagoing vessel based on the 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. It must be noted in respect of the pro forma net income that the earnings of MS BENJAMIN SCHULTE Shipping GmbH & Co. KG in fiscal year 2010 was determined significantly by losses on exchange relating to a JPY loan. 84

89 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint (48) Company boards (a) Management Board The following were appointed members of the company s Management Board in the fiscal year: Dr Karsten Liebing, managing director of HAMMONIA Reederei GmbH & Co. KG, Hamburg Jan Krutemeier, managing director of HCI Hanseatische Schiffsconsult GmbH, Hamburg (b) Supervisory Board The Supervisory Board consists of the following members: Werner Berg, managing director of AKTIVA Beteiligungs- und Verwaltungs-GmbH and of PROKURATOR GmbH, Berlin (chairman) Michael Hummel, head of capital investments of Sparkasse Vogtland, Auerbach (deputy chairman) Andreas Uibeleisen, bank manager of 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 BUXFAVOUR- ITE 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 Hermann Buss GmbH & Co. KG MS EMS TRADER (chairman) 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 Reederei MS E. R. LONDON Beteiligungsgesellschaft mbh & Co. KG Schiffsportfolio Global 1 (chairman) Schiffsportfolio Global 2 (chairman) Ocean Shipping I GmbH & Co. KG (chairman) NORDCAPITAL Offshore Fonds 1 85

90 HCI HAMMONIA SHIPPING AG Annual Report 2010 Michael Hummel is a member of the administrative boards of the following companies: Sparkasse Vogtland Andreas Uibeleisen is a member of the advisory 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 (49) Audit fees The total fees of the auditor HANSA PARTNER GmbH Wirtschaftsprüfungsgesellschaft, Hamburg, can be broken down as follows: EUR Auditing services Other certification and consultancy services Tax consultancy services 0 0 Other services 0 0 Total The statement of auditing services for fiscal year 2010 (2009) includes EUR 6k (EUR 10k) for the prior-year audit. (50) Corporate Governance Code Management Board and Supervisory Board of HCI HAM- MONIA 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 9 December 2010 and made permanently available to the shareholders on the Web site of HCI HAMMONIA SHIPPING AG at hci-hammonia-shipping.de/userfiles/downloads/ir_downloads/ _entsprechenserklaerung.pdf. (51) 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): Debeka Lebensversicherungsverein a.g., Koblenz, Germany, notified us on 3 December 2007 pursuant to Section 21 (1a) WpHG that it held a share in the voting rights of 6.66 % (9,090 voting rights) as of 26 November 2007, the date of first-time admission of the shares of HCI HAMMO- NIA SHIPPING AG, Hamburg, Germany, to trading. Debeka Krankenversicherungsverein a.g., Koblenz, Germany, notified us on 3 December 2007 pursuant to Section 21 (1a) WpHG that it held a share in the voting rights of 6.66 % (9,090 voting rights) as of the date of first-time admission of the shares of HCI HAMMONIA SHIPPING AG, Hamburg, Germany to trading on November 26, Sparkasse Singen-Radolfzell, Singen, Germany, notified us on 5 December 2007 pursuant to Section 21 (1a) WpHG that its share in the voting rights of HCI HAMMONIA SHIP- PING AG, Hamburg, Germany, came to 3.33 % (4,545 voting rights) as of 26 November Deutscher Ring Lebensversicherungs-AG, Hamburg, Germany, notified us on 6 December 2007 pursuant to Section 21 (1a) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, came to % (8,180 voting rights) as of 26 November

91 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Deutscher Ring Krankenversicherungsverein a.g., Hamburg, Germany, notified us on 6 December 2007 pursuant to Section 21 (1a) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, came to % (5,450 voting rights) as of 26 November HAMMONIA Reederei GmbH & Co. KG, Hamburg, Germany, notified us on 5 December 2007 pursuant to Section 21 (1a) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, came to 9.86 % (13,452 voting rights) as of the date of first-time admission of the shares to trading on 26 November In accordance with Section 22 (1) sentence 1 nos. 2 and 6 WpHG, the share of the voting rights is attributed to HAM- MONIA Reederei GmbH & Co. KG indirectly through the stake held by HSH Nordbank AG, Hamburg, Germany. Döhle ICL Beteiligungsgesellschaft mbh, Hamburg, Germany, notified us pursuant to Section 21 (1a) WpHG that it had acquired a share in the voting rights of HCI HAM- MONIA SHIPPING AG, Hamburg, Germany that came to 3.33 % (4,546 voting rights) as of the date of first-time admission of the shares to trading on 26 November Jochen Döhle, Germany, notified us on 6 December 2007 pursuant to Section 21 (1a) WpHG that he had acquired a share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, that came to % (18,498 voting rights) as of the date of first-time admission of the shares to trading on 26 November According to Section 22 (1) sentence 1 no. 1 WpHG, the voting rights of 3.33 % (4,546 voting rights) held by Döhle ICL Beteiligungsgesellschaft mbh, Hamburg, Germany, entered in the register of companies at the District Court (Amtsgericht) Hamburg under no. HRB 85804, are attributable to Jochen Döhle; Peter Döhle Schiffahrts-KG, Hamburg, Germany, holds an interest of 100 % in Döhle ICL Beteiligungsgesellschaft mbh, Hamburg, Germany, and Jochen Döhle holds an interest of 100 % in the managing partner of Peter Döhle Schiffahrts- KG, Beteiligungs- und Verwaltungsgesellschaft Peter Döhle mbh, Hamburg, Germany. In addition, a share in the voting rights of 9.86 % (13,452 voting rights) is attributed to Jochen Döhle pursuant to Section 22 (1) sentence 1 nos. 2 and 6; sentence 2 WpHG indirectly through the stake held by HSH Nordbank AG, Hamburg, Germany. Peter Döhle Schiffahrts-KG, Hamburg, Germany, notified us on 6 December 2007 pursuant to Section 21 (1a) WpHG that it had acquired a share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, that came to % (17,998 voting rights) as of the date of first-time admission of the shares to trading on 26 November According to Section 22 (1) sentence 1 no. 1 WpHG, a share in the voting rights of 3.33 % (4,546 voting rights) held by Döhle ICL Beteiligungsgesellschaft mbh, Hamburg, Germany, entered in the register of companies at the District Court (Amtsgericht) Hamburg under no. HRB 85804, in which Peter Döhle Schiffahrts-KG holds an interest of 100 %, is attributed to Peter Döhle Schiffahrts-KG. In addition, a share in the voting rights of 9.86 % (13,452 voting rights) is attributed to Peter Döhle Schiffahrts-KG pursuant Section 22 (1) sentence 1 nos. 2 and 6; sentence 2 WpHG indirectly through the stake held by HSH Nordbank AG, Hamburg, Germany. Beteiligungs- und Verwaltungsgesellschaft Peter Döhle mbh, Hamburg, Germany, notified us on 6 December 2007 pursuant to Section 21 (1a) WpHG that it had acquired a share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, that came to % (17,998 voting rights) as of the date of first-time admission of the shares to trading on 26 November According to Section 22 (1) sentence 1 no. 1 WpHG, a share in the voting rights of 3.33 % (4,546 voting rights) is attributed to Beteiligungs- und Verwaltungsgesellschaft Peter Döhle mbh held by Döhle ICL Beteiligungsgesellschaft mbh, Hamburg, Germany, entered in the register of companies at the District Court (Amtsgericht) Hamburg under no. HRB 85804, in which Peter Döhle Schiffahrts-KG, Hamburg, Germany, whose managing partner is Beteiligungs- und Verwaltungsgesellschaft Peter Döhle mbh, holds an interest of 100 %. In addition, a share in the voting rights of 9.86 % (13,452 voting rights) is attributed to Beteiligungsund Verwaltungsgesellschaft Peter Döhle mbh pursuant to Section 22 (1) sentence 1 nos. 2 and 6; sentence 2 WpHG indirectly through the stake held by HSH Nordbank AG, Hamburg, Germany. Ärzteversorgung Westfalen-Lippe, Münster, Germany, notified us pursuant to Section 21 (1a) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, came to 3.67 % (5,000 voting rights) as of 26 November The share of 3.67 % (5,000 voting rights) is attributed to Ärzteversorgung Westfalen-Lippe in accordance with Section 22 (1) sentence 1 no. 2 WpHG indirectly through the stake held by Ferrum Pension Management S.a.r.l. Norddeutsche Landesbank Girozentrale, Hannover, Germany, notified us that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, fell below 87

92 HCI HAMMONIA SHIPPING AG Annual Report 2010 the threshold of 10 % as of 7 February Its share in the voting rights now comes to %. This share equals 11,965 voting rights. Sparkasse Vogtland, Plauen, Germany, notified us pursuant to Section 21 (1) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, exceeded the threshold of 3 % as of 20 June 2008 and now comes to 3.30 % (4,500 voting rights). HSH Nordbank AG, Hamburg, Germany, notified us pursuant to Section 21 (1) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, fell below the threshold of 20 % as of 5 August 2008 and came to % (26,942 voting rights) as of that date. The Free and Hanseatic City of Hamburg, Germany, notified us pursuant to Section 21 (1) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Bleichenbrücke 10, Hamburg, exceeded the 3 %, 5 %, 10 %, and 15 % thresholds as of 25 June 2009 and now comes to % (26,481 of altogether 136,414 voting rights). All of these voting rights are attributed to the Free and Hanseatic City of Hamburg in accordance with Section 22 (1) sentence 1 no. 1, (3) WpHG by its following subsidiaries whose respective shares in voting rights equal 3 % or more: - HSH Finanzfonds AöR (parent of HSH Nordbank AG), - HSH Nordbank AG. The federal state of Schleswig-Holstein, Kiel, Germany, notified us pursuant to Section 21 (1) WpHG on 1 July 2009 that its share in the voting rights of HCI HAMMO- NIA SHIPPING AG, Bleichenbrücke 10, Hamburg, exceeded the 3 %, 5 %, 10 %, and 15 % thresholds as of 25 June 2009 and now comes to % (26,481 of altogether 136,414 voting rights). All of these voting rights are attributed to the federal state of Schleswig-Holstein in accordance with Section 22 (1) sentence 1 no. 1, (3) WpHG by its following subsidiaries whose respective shares in voting rights equal 3 % or more: - HSH Finanzfonds AöR (parent of HSH Nordbank AG), - HSH Nordbank AG. HSH Finanzfonds AöR, Hamburg, Germany, notified us pursuant to Section 21 (1) WpHG on 1 July 2009 that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Bleichenbrücke 10, Hamburg, exceeded the 3 %, 5 %, 10 %, and 15 % thresholds as of 25 June 2009 and now comes to % (26,481 of altogether 136,414 voting rights). All of these voting rights are attributed to HSH Finanzfonds AöR in accordance with Section 22 (1) sentence 1 no. 1, (3) WpHG by its following subsidiary whose share in voting rights equals 3 % or more: - HSH Nordbank AG. On 30 June 2009 HSH Finanzfonds AöR, Hamburg notified us pursuant to Section 21 (1) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG comes to % (26,481 of altogether 136,414 voting rights) and that these voting rights are attributed through its subsidiary HSH Nordbank AG in accordance with Section 22 (1) sentence 1 no. 1, (3) WpHG. Against this backdrop, HSH Finanzfonds AöR also notified us of the following on 21 July pursuant to Section 27a (1) WpHG: 1. Objectives pursued with the acquisition: a) The acquisition of voting rights of HCI HAMMONIA SHIPPING AG took place merely by attribution of the shareholding of HSH Nordbank AG pursuant to Section 22 (1) sentence 1 no. 1, (3) WpHG. Hamburg-based HSH Finanzfonds AöR neither pursues strategic objectives nor aims for trading profits relating to the issuer. b) HSH Finanzfonds AöR does not intend to acquire further voting rights either through purchase or in any other way within the next twelve months. c) HSH Finanzfonds AöR does not intend to exert influence on the composition of the issuer s administrative, executive or supervisory boards. d) HSH Finanzfonds AöR does not aim for any material changes in the company s capital structure, particularly with respect to the relation of equity to borrowed capital or its dividend policy. 2. Origin of funds used for the acquisition: The acquisition of voting rights took place merely by attribution of the shareholding of HSH Nordbank AG pursuant to Section 22 (1) sentence 1 no. 1, (3) WpHG. Neither borrowed capital nor equity was used directly for the acquisition of voting rights of HCI HAMMONIA SHIPPING On 1 July 2009 the federal state of Schleswig-Holstein, Kiel, notified us pursuant to Section 21 (1) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG comes to % (26,481 of altogether 136,414 voting rights) and that these voting rights are attributed through its subsidiaries HSH Finanzfonds AöR and HSH Nordbank AG in accordance with Section 22 (1) sentence 1 no. 1, (3) WpHG. Against this backdrop, the federal state of Schleswig-Holstein also notified us of the following on 21 July pursuant to Section 27a (1) WpHG: 1. Objectives pursued with the acquisition: a) The acquisition of voting rights of HCI HAMMONIA SHIPPING AG took place merely by attribution of the shareholding of HSH Nordbank AG pursuant to Section 22 (1) sentence 1 no. 1, (3) WpHG. The federal state of Schleswig-Holstein neither pursues strategic objectives nor aims for trading profits relating to the issuer. b) 88

93 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint The federal state of Schleswig-Holstein does not intend to acquire further voting rights either through purchase or in any other way within the next twelve months. c) The federal state of Schleswig-Holstein does not intend to exert influence on the composition of the issuer s administrative, executive or supervisory boards. d) The federal state of Schleswig-Holstein does not aim for any material changes in the company s capital structure, particularly with respect to the relation of equity to borrowed capital or its dividend policy. 2. Origin of funds used for the acquisition: The acquisition of voting rights took place merely by attribution of the shareholding of HSH Nordbank AG pursuant to Section 22 (1) sentence 1 no. 1, (3) WpHG. Neither borrowed capital nor equity was used directly for the acquisition of voting rights of HCI HAMMONIA SHIPPING AG. On 30 June 2009 the Free and Hanseatic City of Hamburg notified us pursuant to Section 21 (1) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG comes to % (26,481 of altogether 136,414 voting rights) and that these voting rights are attributed through its subsidiaries HSH Finanzfonds AöR and HSH Nordbank AG in accordance with Section 22 (1) sentence 1 no. 1, (3) WpHG. Against this backdrop, the Free and Hanseatic City of Hamburg also notified us of the following on 23 July pursuant to Section 27a (1) WpHG: 1. Objectives pursued with the acquisition: a) The acquisition of voting rights of HCI HAMMONIA SHIPPING AG took place merely by attribution of the shareholding of HSH Nordbank AG pursuant to Section 22 (1) sentence 1 no. 1, (3) WpHG. The Free and Hanseatic City of Hamburg neither pursues strategic objectives nor aims for trading profits relating to the issuer. b) The Free and Hanseatic City of Hamburg does not intend to acquire further voting rights either through purchase or in any other way within the next twelve months. c) The Free and Hanseatic City of Hamburg does not intend to exert influence on the composition of the issuer s administrative, executive or supervisory boards. d) The Free and Hanseatic City of Hamburg does not aim for any material changes in the company s capital structure, particularly with respect to the relation of equity to borrowed capital or its dividend policy. 2. Origin of funds used for the acquisition: The acquisition of voting rights took place merely by attribution of the shareholding of HSH Nordbank AG pursuant to Section 22 (1) sentence 1 no. 1, (3) WpHG. Neither borrowed capital nor equity was used directly for the acquisition of voting rights of HCI HAMMONIA SHIPPING AG. Sachsen-Finanzgruppe, Leipzig, Germany, notified us pursuant to Section 21 (1) WpHG that its share in our company s voting rights exceeded the 3 % threshold on 20 June 2008 and comes to 3.30 % (4,500 voting rights) as of that date % (4,500 voting rights) are attributed to Sachsen-Finanzgruppe in accordance with Section 22 (1) sentence 1 no. 1 WpHG. The attributed voting rights are held by the following company whose share in the voting rights of HCI HAMMONIA SHIPPING AG equals 3 % or more and which is controlled by Sachsen-Finanzgruppe: Sparkasse Vogtland. Sparkassenzweckverband Hildesheim, Hildesheim, Germany, notified us pursuant to Section 21 (1a) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, comes to 3.30 % (4,500 voting rights) as of 26 November In accordance with Section 22 (1) sentence 1 no. 1 WpHG, 3.30 % (4,500 voting rights) are attributable to Sparkasse Hildesheim. The attributed voting rights are held by the following shareholders whose share in the voting rights of HCI HAMMONIA SHIPPING AG equals 3 % or more: Sparkasse Hildesheim. Universal-Investment-Gesellschaft mbh, Frankfurt/Main, Germany, notified us pursuant to Section 21 (1) WpHG that its share in our company exceeded the 3 % threshold on 15 July 2010 and comes to % (5,000 voting rights) as of that date. In accordance with Section 22 (1) sentence 1 no. 6 WpHG, % (5,000 voting rights) are attributable to Universal-Investment-Gesellschaft mbh. The attributed voting rights are held by the following shareholders whose share in the voting rights of HCI HAMMONIA SHIPPING AG equals 3 % or more: ÄrzteVersorgung Westfalen-Lippe. Ferrum Pension Management S.à.r.l., Luxembourg, Luxembourg, notified us pursuant to Section 21 (1) WpHG that its share in the voting rights of our company fell below the 3 % threshold on 15 July 2010 and comes to 0 % as of that date (no voting rights). Feri Institutional Advisors GmbH, Bad Homburg, Germany, notified us pursuant to Section 21 (1) WpHG that its share in the voting rights of our company fell below the 3 % threshold on 15 July 2010 and comes to 0 % as of that date (no voting rights). Feri Finance AG, Bad Homburg, Germany, notified us pursuant to Section 21 (1) WpHG that its share in the voting rights of our company fell below the 3 % threshold on 15 July 2010 and comes to 0 % as of that date (no voting rights). MLP AG, Wiesloch, Germany, notified us pursuant to Section 21 (1) WpHG that its share in the voting rights of our company fell below the 3 % threshold on 15 July 2010 and comes to 0 % as of that date (no voting rights). 89

94 HCI HAMMONIA SHIPPING AG Annual Report 2010 Sparkasse Hildesheim, Hildesheim, Germany, notified us pursuant to Section 21 (1a) WpHG that its share in the voting rights of HCI HAMMONIA SHIPPING AG, Hamburg, Germany, comes to 3.30 % (4,500 voting rights) as of 26 November Helaba Invest Kapitalanlagegesellschaft mbh, Frankfurt, Germany notified us pursuant to Section 21 (1a) WpHG that its share in our company s voting rights comes to 6.23 % (8,500 voting rights) as of 26 November In accordance with Section 22 (1) sentence 1 no. 6 WpHG, 6.23 % (8,500 voting rights) are attributable to the company. The attributed voting rights are held by the following shareholders whose share in the voting rights of HCI HAMMONIA SHIPPING AG equals 3 % or more: Sparkasse Hildesheim. Helaba Invest Kapitalanlagegesellschaft mbh, Frankfurt, Germany, notified us pursuant to Section 21 (1) WpHG that its share in our company s voting rights fell below the 5 % threshold on 24 June 2010 and comes to 4.54 % (6,196 voting rights) as of that date. In accordance with Section 22 (1) sentence 1 no. 6 WpHG, 4.54 % (6,196 voting rights) are attributable to the company. The attributed voting rights are held by the following shareholders whose share in the voting rights of HCI HAMMONIA SHIPPING AG equals 3 % or more: Sparkasse Hildesheim. (52) Subsequent events After negotiations on redemption payment deferments with respect to the six 2,500 TEU container vessels were concluded successfully with the financing banks in September 2010, the corresponding agreements were signed by all parties involved at the end of January For the deferments tolerated by the banks involved with respect to both 3,100 TEU vessels, the contracts are currently being finalized. Apart from that no events of particular significance with potential effects on the consolidated financial statements took place between the end of the year 2010 and the date of the preparation of this report. (53) 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 BENJAMIN SCHULTE Shipping GmbH & Co. KG 90

95 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint (54) Statement of share ownership according to Section 313 (2) to (4) HGB The statement of share ownership of HCI HAMMONIA SHIPPING AG and the Group as of 31 December 2010 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 11 April 2011 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 18 April 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 and 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, 11 April 2011 HCI HAMMONIA SHIPPING AG Hamburg, 11 April 2011 HCI HAMMONIA SHIPPING AG Dr Karsten Liebing Management Board Jan Krutemeier Management Board Dr Karsten Liebing Management Board Jan Krutemeier Management Board 91

96 HCI HAMMONIA SHIPPING AG Annual Report 2010 Auditor s Report We have audited the consolidated financial statements prepared by the HCI HAMMONIA SHIPPING AG, Hamburg, comprising the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of cash flows and the notes to the consolidated financial statements, together with the Group management report for the business year from January 1 to December 31, The preparation of the consolidated financial statements and the Group management report in accordance with IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to 315a Abs. 1 HGB [Handelsgesetzbuch German Commercial Code ] and supplementary provisions of the articles of incorporation are the responsibility of the parent company s management. Our responsibility is to express an opinion on the consolidated financial statements and on the Group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accountingrelated internal control system and the evidence supporting the disclosures in the consolidated financial statements and the Group management report are examined primarily on a test basis within the frame-work of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the Group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs as adopted by the EU, the additional requirements of German commercial law pursuant to 315a Abs. 1 HGB and supplementary provisions of the articles of incorporation and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The Group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group s position and suitably presents the opportunities and risks of future development. Hamburg, 11 April 2011 HANSA PARTNER GmbH Wirtschaftsprüfungsgesellschaft (Arp) Wirtschaftsprüfer ppa. (Keßler) Wirtschaftsprüfer 92

97 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint 93

98 HCI HAMMONIA SHIPPING AG Annual Report _ Seperate financial statements of HAMMONIA SHIPPING AG Income statement EUR Revenues 132, , Other operating income 5,487, , Depreciation and amortization of intangible assets property, plant and equipment 4, , Other operating expenses 2,411, ,553, Income from investments 7,785, ,419, Other interest income and similar income 258, , Depreciation on investments ,184, Interest expenses and similar expenses 36, Net income / PY: Net loss 11,210, ,059, Profit carry-forward 96, ,155, Income from capital decrease 122,772, Allocation to capital reserve 122,772, Retained earnings 11,306, ,

99 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Statement of financial position Assets EUR 31 / 12 / / 12 / 2009 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 Investments in affiliated companies 152,467, ,720, B. Current assets I. Receivables and other assets 1. Receivables from affiliated companies 14,639, ,633, Other assets 19, ,658, , II. Balances at banks 992, ,137, C. Accruals and deferrals 1,079, ,333, ,197, ,338, Equity and Liabilities EUR 31 / 12 / / 12 / 2009 A. Equity I. Subscribed capital 13,641, ,414, II. Capital reserve 136,409, ,636, III. Surplus reserves Statutory reserve 5, , IV. Retained earnings 11,306, , ,362, ,151, B. Provisions Other provisions 136, , C. Liabilities 1. Profit participation capital 7,450, Trade payables 129, , Other liabilities 118, ,698, ,197, ,338,

100 HCI HAMMONIA SHIPPING AG Annual Report 2010 Development of non-current assets Acquisition and production cost EUR 01 / 01 / 2010 Additions Disposals 31 / 12 / 2010 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 Investments in affiliated companies 142,904, ,362, , ,467, ,918, ,362, , ,481, Accumulated depreciation and amortization EUR 01 / 01 / 2010 Additions Disposals Right-ups 31 / 12 / 2010 I. Intangible assets Licenses, industrial property rights and similar rights and assets as well as licenses to such rights and assets 10, , , II. Financial assets Investments in affiliated companies 5,184, ,184, ,194, , ,184, , Carrying amount EUR 31 / 12 / / 12 / 2010 I. Intangible assets Licenses, industrial property rights and similar rights and assets as well as licenses to such rights and assets 4, II. Financial assets Investments in affiliated companies 137,720, ,467, ,724, ,467,

101 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint Statement of share property as of 31 December 2010 Registered officce Equity in EUR Interest- % Result 2010 EUR MS HAMMONIA POMERENIA Schiffahrts GmbH & Co. KG Hamburg 11,620, , MS SAXONIA Schiffahrts GmbH & Co. KG Hamburg 9,886, , MS WESTPHALIA Schiffahrts GmbH & Co. KG Hamburg 8,567, , MS HAMMONIA ROMA Schiffahrts GmbH & Co. KG Hamburg 10,595, , MS HAMMONIA HOLSATIA Schiffahrts GmbH & Co. KG Hamburg 10,046, , MS HAMMONIA TEUTONICA Schiffahrts GmbH & Co. KG Hamburg 10,002, , MS HAMMONIA MASSILIA Schiffahrts GmbH & Co. KG Hamburg 10,926, , MS HAMMONIA BAVARIA Schiffahrts GmbH & Co. KG Hamburg 11,772, , MS HAMMONIA FIONIA Schiffahrts GmbH & Co. KG Hamburg 17,806, ,525, MS HAMMONIA HAFNIA Schiffahrts GmbH & Co. KG Hamburg 18,382, ,801, MS HAMMONIA DANIA Schiffahrts GmbH & Co. KG Hamburg 17,330, ,404, MS BENJAMIN SCHULTE Shipping GmbH & Co. KG Hamburg 14,732, ,860, Verwaltung HCI HAMMONIA Schiffahrts GmbH Hamburg 102, , Beteiligung MS BENJAMIN SCHULTE Shipping GmbH Hamburg 132, ,

102 HCI HAMMONIA SHIPPING AG Annual Report _Supervisory Board report Dear shareholders, in 2010 HCI HAMMONIA SHIPPING AG had the full container capacity of all acquired vessels at its disposal over the entire year for the first time. Thus the fleet size planned upon the IPO was reached. At the same time, the year 2010 was determined by a recovery in the container shipping market, if only at a low level initially. The restructuring of two charterers of both Döhle pools carried out within the scope of the shipping crisis was successful. The earnings forecast for HCI HAMMONIA SHIPPING AG could therefore be raised in the course of the year At the Annual General Meeting held in June 2010, the Management Board was authorized to carry out corporate actions in agreement with the Supervisory Board in order to acquire additional ships for HCI HAMMONIA SHIPPING AG. Following intensive negotiations, the Management Board was able to acquire a first investment in a shipping company at the end of December The acquisition was financed by the issue of profit participation rights. The new ship investment generates a solid cash flow and ideally enhances the ship portfolio of HCI HAMMONIA SHIPPING AG. The Management Board hopes to tie up more ships in the year The Supervisory Board has 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 situation. 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 2009; hammonia dania (charter name Maersk Karlskrona) 7,800 TEU container ship 98

103 Short Portrait Welcome Address The Company Management Report Financial Statements Annual Financial Statements Supervisory Board Report Financial Calendar / Contact / Imprint adoption of the interim financial statements for the first half-year 2010; the subsidiaries risk management; following the market developments in the shipping markets and assessing the effects on the company; discussion of a possible capital increase (change of authorized capital) for the purchase of more ships and reduction of the share capital discussion of a dividend for the year 2009; preparation and performance of the Annual General Meeting 2010 and its resolution proposals; 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; HANSA PARTNER GmbH Wirtschaftsprüfungsgesellschaft, Kehrwieder 11, Hamburg, was elected auditor and Group auditor for fiscal year 2010 by shareholders resolution. The auditing firm audited the financial statements and the management report of HCI HAMMONIA SHIPPING AG as of 31 December 2010 according to HGB as well as the consolidated financial statements and the consolidated management report as of 31 December 2010 according to IFRS/IAS including respective accounting and issued an unqualified auditor s report. The Supervisory Board approved the result of the audit and the auditing firm s issue of the auditor s report, and it approved of the audit reports on the financial statements and consolidated financial statements. In its meeting of 18 April 2011, the Supervisory Board approved the financial statements and consolidated financial statements 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 the company s successful development for their commitment to the implementation of the corporate actions resolved by shareholder s resolution in the year Hamburg, 18 April 2011 budget planning for the years 2010 and Werner Berg Chairman of the Supervisory Board 99

104 100 HCI HAMMONIA SHIPPING AG Annual Report 2010