ANNUAL REPORT 2013 CPH City & Port Development Central Business Register (CBR) no

Transcription

1 ANNUAL REPORT 2013 CPH City & Port Development Central Business Register (CBR) no The Annual Report was presented and approved at the company s ordinary partnership meeting on 24 April 2014 Chairman Britta Køster

2 CPH City & Port Development Central Business Register (CBR) no Annual Report 2013

3 Table of Contents Management's report Page Summary of the year Area development Leasing Parking Port operation Corporate Social Responsibility (CSR) Corporate governance Organisation and employees Corporate aspects Risk factors Accounting report Result Balance sheet Expectations for 2014 and future years Events after the end of the financial year Accounts Income statement Balance sheet Cash flow statement Total equity statement Notes Accounting practice adopted Management opinion The independent auditors' declarations 2

4 Management's report 1. Summary of the year 2013 was a good year for CPH City & Port Development Several milestones were achieved and, for the first time in many years, contracts were concluded for the sale of development sites in the company's development area. The positive trend was reflected in the profit for the year, which amounted to DKK 332 million before fair value adjustment of debt (DKK -640 million in 2012). The improvement concerns positive change in fair value of investment properties, decreasing funding costs and improvements in primary operations. The result of the primary operations, excluding change in fair value of investment properties, amounted to DKK 145 million, which is an increase of more than DKK 47 million compared to The increase is due to an increase in revenue of 30%, which primarily relates to rental income and income from the receipt of soil. Apart from an increase in depreciations, costs remained generally at the same level as in CPH City & Port Development experienced an increasing interest in the company's development sites in 2013, and transactions were completed for more than DKK 500 million. It is anticipated that the same volume of transactions can be completed in In addition to the sale of development sites, UN City Campus 1, which CPH City & Port Development constructed for the UN organisations in Copenhagen, was sold in The first stage of the construction was commissioned in January 2013, while the remainder of the total of m 2 were commissioned in early In 2013, the greatest interest was focused on the company's areas at Marmormolen and in Inner Nordhavnen, primarily for residential purposes. Throughout 2013, the company worked to ensure the provision of the basis for planning for the next areas of Inner Nordhavnen, so that the company also has the ability to meet demand over the coming years. This work includes the area at Trælastholmen and Sundmolen. There is also the western part of Levantkaj, where the preparatory work on the exploitation of a commercial building area is expected to commence in These works launch the planning and the first concrete investments in the subsequent transfer of the commercial port to the newly completed areas in Nordhavnen. During 2013, the company has also come closer to realising its remaining development rights in Teglholmen and Enghave Brygge in Sydhavnen. The company has positive expectations for the development of both areas, although regulatory matters there must be clarified first. There are signs of growing interest from investors to start construction in Ørestad. Development rights in Ørestad North were sold in 2013 for the construction of terraced houses, and it is expected that a contract will be concluded in the beginning of 2014 for the sale of a major building zone for commercial use. In Ørestad South, it is primarily land that was sold previously which is now being activated. An efficient infrastructure is an important parameter for the development of the company's urban areas. In May 2013, parliament adopted the "Bill to amend the Act regarding Metroselskabet I/S and Arealudviklingsselskabet I/S" on the establishment of the Metro for Nordhavnen. The company regards this as an enhancement of the area's attraction and value, and in accordance with the Act, the company has paid a contribution to the establishment of the Metro. In addition to the Metro contribution, the company made investments in urban development in 2013 for more than DKK100 million, primarily in Inner Nordhavnen. In addition to infrastructure and utilities, the investments also include the establishment of a shared parking facility, where the company has more than spaces in its development areas. Through a subsidiary, CPH City & Port Development also investing with an investor in the construction of 128 homes on Marmormolen. They are expected to be ready for their occupants in August The company's largest investment activity in 2013 has been the expansion of Nordhavnen. The investment includes a new cruise ship harbour, which will receive the first ship in May 2014, as well as the enclosure of a larger area that, in the longer term, is intended to be used as a commercial harbour. In 2014 we will invest in the continued development of Inner Nordhavnen around the Århusgade district and Sundmolen, on Teglholmen and in Ørestad, primarily at the so-called Arena district in Ørestad South. 3

5 The company's main source of revenue is from the rental of buildings for office purposes and warehouses, as well as land and water areas. The rental area is being expanded by continuously upgrading older buildings that have been used for harbour operations, and converting them to modern rental buildings. At the same time, the rental area is being reduced in those cases where existing premises cannot be included in the planned urban development. In 2013, the rental income increased through the introduction of new storage facilities that CPH City & Port Development has established for UNICEF, while certain leases in the Århusgade district were dropped. The recovery in the property market, the positive revaluation of debt and the improved operations have resulted in a total revenue, including fair value adjustment of debt, of DKK million. (DKK -922 million in 2012). The total equity has accordingly been assessed as DKK million, versus DKK 450 million at the time of the company's formation. Since the formation of the company, the equity capital has been affected by unrealised fair value adjustment of the company's borrowings of approx. DKK million. As the loans approach expiry, the change in fair value will be carried back to the result and thus the equity capital and will therefore have no effect on the company s long-term finances. At the end of 2013, the company's interest-bearing debt was DKK million (DKK million in 2012). Financial highlights and key ratios DKK millions DKK millions DKK millions DKK millions DKK millions Profit Net sales Change in fair value investment properties Operating profit Income from capital shares in subsidiaries Result for capital shares in joint ventures Result for capital shares in associated companies Financial items net. (excluding fair value adjustment of debts) Financial items net. (including fair value adjustment of debts) Result before fair value adjustment of debts Result for the year Balance sheet Assets at 31 December Total non-current assets Total current assets Investments in tangible fixed assets Depreciation and amortisation Total equity Cash flow Cash flow from: - operating activity investment activity of which investment in tangible fixed assets financing activity Change in cash funds for the year Number of employees Key numbers % Net profit ratio 66.0% N/A N/A 71.4% -26.7% Return on assets 4.0% -1.4% -4.4% 4.6% -0.3% Solvency -23.1% -31.6% -26.9% -10.4% -9.0% Return on equity N/A N/A N/A N/A N/A Net interest-bearing debt Key figures have been prepared in accordance with the recommendations and guidelines of The Danish Society of Financial Analysts. See the definitions in the section on accounting practice. Restoration of equity and debt reduction through the sale of investment property are the primary control parameters for the company. With the current sales expectations and investment plans, the equity is expected to be restored within a 10-year period, while the debt is expected to be reduced at the same time. 4

6 The development of both equity capital and debts in the longer term is dependent on economic conditions in the coming years. The form of the company and its owners mean that negative equity has no consequences for continued operation of the company. 2. Area development Table 1. Key figures for area development DKK millions Net sales Value adjustment of investment properties Other income 2 0 Total income Costs Operating profit Balance sheet Investments Total non-current assets Total liabilities Sale of building rights The sale of building in 2013 was focused on the Århusgade district, where contracts were concluded for the sale of approximately square metres. The sales are distributed over a wide range of housing projects, both owner-occupied and rental housing, as well as a large trade in building rights for office purposes on Redmolen. The buyers have consisted of a number of pension funds and property funds etc., and only included a small number of traditional developers. With the completed sales and contracts signed in 2013, and the ongoing negotiations, which are expected to be completed in the near future, there are very few available building sites in the Århusgade district, and the remaining sites are all for business purposes. The largest completed transaction in the Århusgade district was the sale of Redmolen to PFA with total building rights for up to square metres. A letter of intent has also been signed for the sale of a large part of the construction areas in the next stage of the development of Sundmolen. This agreement is solely conditional on the adoption of a local development plan corresponding to the master plan for the development of Nordhavnen. Overall, the interest in the Århusgade district has increased significantly during the year, and there is a demand for a greater range of build options for housing purposes than is currently available. There has been a great deal of interest in a number of projects in Ørestad, including in Radiorækkerne, where another15 houses were put up for sale due to the high level of demand. There has been a continuous sale of between 16 and 18 apartments every month in 8TALLET, and the last owner-occupied homes were sold in There was major interest in the building rights on Teglholmen in the last half of 2013, and the company is therefore in advanced negotiations concerning approx square metres of building rights for residential purposes. All agreements are conditional on obtaining an exemption for a lower parking ratio than exists at present. Ørestad As part of the increased population growth, Ørestad continues to be developed with activities and momentum in all three districts. In Ørestad North, the local development plan for the August Schade district was adopted, which allows the construction of Nordea's new headquarters, among other things. In Ørestad City, Copenhagen Towers is in the processing of getting another tower, while a number of new buildings are under construction in Ørestad South, including a new day-care facility, public housing, family and youth housing, etc was also the year when the local development plan was adopted for the Arena district in Ørestad South. An indoor arena with seating for spectators is under construction in the district. The arena has been granted planning permission and 5

7 the construction has begun and the building is expected to be fully completed in early There are also plans for a skating rink and a primary school, and the local development plan also allows for approximately square metres of residential and commercial construction. The company will establish roads and public spaces for the entire area, which is expected to start in In collaboration with the City of Copenhagen, the company has continued to work on the design of a municipal sports centre in Ørestad City, which is expected to be a focal point for the development of sports and cultural activities in Ørestad. In January 2014, a supplement to the local development plan for the area was adopted in Copenhagen City Council, enabling the project to proceed. It is expected to be ready for use in early Nordhavnen CPH City & Port Development made great progress in 2013 with the work to develop Inner Nordhavnen and realise the Århusgade district as the first urban district in Nordhavnen. The activities include construction of the first streets and promenades, which are expected to be fully completed in spring Demolition has been completed of a number of warehouses and storage buildings that were not worthy of preservation. Prior to the establishment of the first parking facility in the Århusgade district, the company conducted a competition for the façade and roof in order to obtain a multi-storey parking facility with a distinctly green character and an active roof surface. In order to develop yet another area of Nordhavnen and meet the growing demand for building rights, the company has worked with local development plans for the areas Århusgade District West, Trælastholmen and Levantkaj West. These plans allow for, among other things, the Metro to Nordhaven and the construction of the Copenhagen International School. Copenhagen City Council adopted local development plans for all three areas in late In the second half of 2013, the company prepared a master plan for the local development plan for Sundmolen. The master plan provides for the preservation of four warehouses, while approximately square metres of new construction will be established in the form of apartment blocks, a multi-storey carpark and extensions to the warehouses. The adoption of the local development plan for Sundmolen means that there are plans for square metres of the square metres permitted for Inner Nordhavnen. In Outer Nordhavnen, the company has completed the cruise ship terminal, including ground surfaces, supply lines and quays and the construction of the three terminal buildings are expected to be completed in May 2014 when the first cruise ship arrives at the new quay. In relation to the expansion of Nordhavnen, the enclosure embankment for clean soil filling was delivered in 2013, allowing for the filling in of the entire clean soil area. Since 2012, the company has received excavation residues for the expansion of Nordhavnen from construction projects in the metropolitan area, including from the Metro construction. Almost 2.5 million tonnes of soil were delivered in 2013, which corresponds to 310 trucks daily. Marmormolen The official opening of the UN City Campus 1 was held in July 2013 in the presence of Her Majesty the Queen, Secretary-General Ban Ki-Moon, the prime minister and many others. At the turn of the year 2013/2014, stage 2 of UN City was handed over to the Danish state. In addition, UNICEF's new warehouse, Campus 2, was handed over to the tenant at the beginning of The site development works on Marmormolen are ongoing, and by the end of 2013, the majority of all the new sheet piling and channel walls were established on Marmormolen. Marmorvej has also been completed and provided with planting. Under the auspices of CPH City & Port Development's subsidiary company, Byggemodningsselskabet Marmormolen P/S, a turnkey contract has been concluded with NCC for the construction of square metres underground parking on two levels and the construction of 128 apartments on Marmormolen, also known as Marmorbyen. In September 2013, the ground was broken for for the housing units, after which the construction work commenced. The underground carpark and the housing units are scheduled to be completed in August Other development areas The local development plan for Enghave Brygge was adopted by the City of Copenhagen in At the end of 2013, the Danish Coastal Authority announced that an Environmental Impact Statement shall be prepared for the establishment of the islands on Enghave Brygge, which the company has appealed in cooperation with the other property owners. 6

8 The company launched the site development of the south-east part of Teglholmen in 2013 with an EU prequalification round where, like for Marmormolen, new sheet piling and channel walls will be established, as well as utility lines, roads and seven new piers filling in the sea area. The company owns Christiansholm, also called Papirøen, and the company has signed an agreement with Christiansholms Ø ApS, partly for temporary use of the old warehouses for creative and outwardlooking purposes, and partly to provide new local development plan for the island within a 5-year period, with a right and a duty for the private limited company to acquire the building rights. 3. Leasing Table 2. Key figures for leasing DKK millions Net sales Value adjustment of investment properties Other income 0 0 Total income Costs Operating profit Balance sheet Total non-current assets Investments Total liabilities The business area includes the leasing and operation of 663 leases for building, land and water areas, most of which are located in Nordhavnen. Revenue from leasing in 2013 was about DKK 55 million more than in 2012, partly due to the leasing of offices to the United Nations (UN City). profit for primary operation totalled DKK -41 million. The negative result is attributable to the value adjustment of investment properties, which was DKK -159 million. The leasing of office space etc. increased during the year to such an extent that the office vacancy level at the end of the year is below the market level in Copenhagen generally. The vacancy rate for purely storage facilities at the end of the year was at the same level as at the beginning of the year, which corresponds to the general market level. The company perform building renovations and lease design itself. There have only been minor projects during the year, but the company expects that there will be conversions of warehouses to offices and showrooms again in Parking Table 3. Key figures for Parking DKK millions Net sales Change in fair value 0 0 Other income 2 0 Total income Costs Operating profit Balance sheet Total non-current assets Investments 0 0 Total liabilities The parking facility is calculated at construction price, excluding the value of the building rights. 7

9 CPH City & Port Development erects, runs and maintains car parks in Ørestad City, Ørestad South, Northern Toldbod and Southern Frihavn. The company is responsible for approximately parking spaces, either in multi-storey car parks or at ground level, which is roughly the same as in During the year, the company closed a temporary ground-level carpark at Fields in Ørestad and opened a multi-storey carpark on Robert Jacobsens Vej in Ørestad with nearly 700 parking spaces. CPH City & Port Development also operates a multi-storey carpark on Amerika Plads, with more than 800 parking spaces. This facility is co-owned with TK Development in a company which carries out urban development on Amerika Plads. In 2014, work was initiated on a multi-storey carpark on Lüdersvej in the the Århusgade district, and the establishment of parking spaces will commence on Kronløbsøen in The revenue from parking increased by DKK 1 million compared to 2012, which corresponds to a total turnover of DKK 40 million. The increase in revenue is a result of higher earnings per customer. The result from primary operations increased by DKK 2 million. The parking facilities are being extended in line with the development of Ørestad and Nordhavnen. The construction of a temporary ground-level carpark in Ørestad South is planned for 2014 in order to service the forthcoming multi-purpose arena. A temporary ground-level carpark is also planned for Nordhavnen to accommodate the future occupants and businesses in the Århusgade district. 5. Port operations Table 4. Key figures for Port operations DKK millions Net sales Other income 0 0 Total income Costs Operating profit Balance sheet Total non-current assets Investments 0 0 Total liabilities 8 20 Most of CPH City & Port Development s port facilities for commercial port operation are leased to the 50%-owned joint venture Copenhagen Malmö Port AB (CMP). Similarly, CMP leases port facilities in Malmö from Malmö Municipality The leases in both Copenhagen and Malmö run until Besides ownership of the shares in CMP, CPH City & Port Development exerts an influence on the development of port operation by planning which areas and facilities are to be used for port operation and by investment in new facilities Investments in new port facilities are typically funded by increased rent payments from CMP The port operating activities in Copenhagen consist primarily of a container terminal in Nordhavnen, an oil and bulk terminal in Prøvestenen and quays and receiving facilities for ferry and cruiser traffic In 2013, CPH City & Port Development completed construction of a new cruise quay, while work continues on establishing three terminal buildings at the new quay. Both the quay and the buildings will be ready for service for the 2014 season. CPH City & Port Development s profit for primary operation of its port activities was DKK 20 million in 2013, DKK 3 million better than the profit figure in The improvement stems primarily from increased rent payments from CMP. Table 5. CMP financial turnover and result (SEK millions) Turnover Operating profit

10 In 2013, CMP achieved a profit on primary operation of SEK 87 million before tax, which is SEK15 million lower than in The development in profit should be viewed in the light of increased rent payment to the port owners and the evolution of foreign exchange rates In 2013, the total volume of goods handled at CMP's quays was 14.4 million tonnes, an increase of 2.3%. The increase occurred primarily with regard to dry bulk and Ro-Ro. The oil volumes also increased in 2013, particularly with regard to the part which is used locally in Malmö and Copenhagen, including aviation fuel for Copenhagen Airport in Kastrup. Cruise traffic has been on par with the level in 2012, and Copenhagen is thus still one of Northern Europe's most important cruise destinations, with around 102 million passengers. 6. Corporate Social Responsibility (CSR) CPH City & Port Development recognises that it has a major responsibility and obligation to provide Copenhagen with new urban areas of high quality and ensure sustainable urban development. As an urban development company and landowner, the company is aware of it's responsibility. The decisions taken by CPH City & Port Development will extend over several decades. CPH City & Port Development's responsibility is anchored in the company's vision: CPH City & Port Development is to create a vibrant urban environment of international class that is attractive to live and work in and which is exciting to visit. In 2011, CPH City & Port Development became a member of UN Global Compacts Communications on Progress (COP) and published the company's third report in March CPH City & Port Development's COP report is available on the company's website CPH City & Port Development's CSR policy is from 2010 and includes three areas of focus: Urban development activities, Environment & sustainability and Well-being & the working environment. Urban Development Activities CPH City & Port Development's urban life activities are a reflection of the company's acknowledgement of the major responsibility that is a natural part of being an urban developer. The company works actively to ensure a sustainable everyday life that makes the new urban areas good and interesting places to live and work. The company is aware that both the big picture and the small details are important when providing the framework for thousands of people's daily lives and activities. In cooperation with the newly-started local sports club Ørestad IF and the user-group at Plug n' Play, CPH City & Port Development has initiated the Ørestad Sports Festival, which was held for the first time in CPH City & Port Development supports the festival with a financial contribution over a 3-year period from 2013 to 2015 and in 2013 we helped to implement the event. The aim of the festival is to bolster the network of sports clubs and sports activities in Ørestad and to establish a platform for cooperation and the promotion of sport. Ørestad Sports Festival was arranged in 2013 by volunteers from local organizations and Ørestad IF. It is envisaged that from 2015, Ørestad IF will take full ownership of the festival, and CPH City & Port Development will gradually pull out of the practical work around the festival's implementation. Ørestad Culture Days were held in 2013 for the seventh time and the event has become an established and highly valued tradition among the residents of Ørestad. CPH City & Port Development initiated the festival in collaboration with Field's and Ørestad Gymnasium. From 2013, the festival is managed by the Landowner Association Secretariat in Ørestad. In Ørestad City, the three islands in the channel at Sivegade, which CPH City & Port Development developed, received Copenhagen Municipality's building award "Good and beautiful buildings and urban environments". The three islands in the channel under the Metro line provide access to the channel's water level and has become a gathering place for everyday activities and events in the city. As part of the urban development of Nordhavnen, the company held an opening event in 2013 to mark the beginning of the work and get the Nordhavnen project off to a good start and celebrate the commencement of the new urban development at the waterfront. The company has also begun work to establish an exhibition about Nordhavnen in the old DLG silo, which will be a focal point for Nordhavnen while the development is under construction. 9

11 CPH City & Port Development has initiated work in relation to Nordhavnen to develop and establish an outpost for the rowing clubs from Svanemøllehavnen. This will remain in place until the relocation of the container terminal and the establishment of a channel connection to the inner harbour. The focus is on the location of the outpost, which features should be established, potential partners, and operations and finance. Environment and sustainability. To a large extent, CPH City & Port Development plans urban areas as sustainable neighbourhoods As a natural extension of planning the urban areas, CPH City & Port Development participated in a pilot project under the Danish Nature Agency and Green Building Council Denmark concerning the certification of urban areas based on the DGNB sustainability system DGNB stands for Deusche Gesellschaft für Bauen Nachhaltiges and is a German system that certifies the sustainability of an urban area via 45 indicators. The selected areas in Nordhavnen are Trælasthomen, Levantkaj West and Sundmolen, and in 2013 CPH City & Port Development succeeded in achieving gold for these areas. CPH City & Port Development will now require that the investors certify their construction. The local development plan for the Århusgade district in Nordhaven focuses on developing a dense urban area with good public transport, ensuring good conditions for vulnerable road users and creating green neighbourhoods with green roofs and mixed housing. The Metro, which is expected to have the first two stations in Nordhavnen completed in 2019, will have a major impact for the urban development. CPH City & Port Development cleared the area in 2013, which entailed the demolition of buildings and providing assistance with a major relocating of utility lines. In connection with the demolition work, the company collaborated with all parties in the area to recycle as mush of the building material as possible. The result was that about half of the material, corresponding to tonnes, has remained in the area. The UN City was LEED certified in 2013 and achieved platinum in In connection with filling in Outer Nordhavnen, CPH City & Port Development was the developer for the City of Copenhagen's Environmental Centre "Kamelen", which was DGNB certified in 2013 and achieved bronze. Sustainable development is very long term and extends over many years. The general plan for Ørestad included environmental and sustainability considerations as long ago as Efficient public transport, appropriate management of rainwater and a densely populated neighbourhood are just some of the sustainable elements that were planned for Ørestad from the very beginning. The company has worked on several environmental initiatives in 2013 in order to reduce the impact of the company's operations on the climate. For example, the company has replaced light bulbs with LEDs in public areas, and traditional light buoys, beacons and mobile light pedestals are now powered by wind and solar energy. Well-being & the working environment In relation to human rights, CPH City & Port Development has decided to invest resources in employee well-being and the working environment, as adopted in the company's CSR policy. No specific policy on human rights was prepared in As a signatory to the UN Global Compacts (COP), the company is committed to working with human rights and to reporting on its efforts. The report is available on the company website CPH City & Port Development continued to work on up-skilling the workforce in The objective of establishing 2-3 temporary workplaces has been achieved with the signing of four agreements on trainee placements at a company and wage subsidies. One student in basic vocational education and training was also employed. In 2013, the company also introduced social clauses and labour clauses in its greater range, whereby the company acknowledges its social responsibility and sets requirements for the number of trainees employed and for pay and working conditions. Read more about the company's initiatives for employee well-being in Section 8. Organisation and employees. CPH City & Port Development intends to review it CSR policy in 2014 and assess whether it should be revised. 10

12 7. Good Corporate Governance Code for corporate governance CPH City & Port Development generally complies with the recommendations issued by the Committee on Corporate Governance Based on the new recommendations issued by the Committee in May 2013, the company has made an assessment of the recommendations, discussed them in the company's board and prepared an updated overview of the company's compliance with all the recommendations. The overview is available on the company's website, where there is also an account of each of the recommendations issued by the Committee on Corporate Governance, whether the company complies with the recommendation and a brief comment/explanation for some of the recommendations. based on the recommendations of the Committee on Corporate Governance, the company has considered relevant whistleblower models, and it is expected that a proposal in this regard will be presented to the company's board in early In general terms, it can be said that the company follows the vast majority of the recommendations, but there are some recommendations that have either been opted out of, or which cannot be observed given the company s special structure and ownership in certain areas, etc. Because CPH City & Port Development is a publicly owned partnership with its own formation legislation, a number of the recommendations are irrelevant for the company and cannot therefore be followed. This applies to recommendations concerning, for example, remuneration policy, considerations relating to the appointment and composition of the Board of Directors and its independence, the term period for members of the Board of Directors and the election of auditors. The composition of the company's management bodies Committees or the like were not appointed during the financial year, and the whole Board of Directors has therefore acted in accordance with the entire company s line of business, and no members were assigned special responsibility during the financial year. The Board of Directors' audit committee, consisting of the full Board and with the Board's Vice Chairman as Chairman, held two meetings in 2013 attended by the company's auditors, where an audit plan, accounting policies and audit reports were discussed. The audit committee's terms of reference can be found on The Board of Directors duties are set out in the company s statutes, which are posted on the company s website - The company s Board of Directors consists of eight members currently six men and two women. In accordance with the company's statutes, members of the Board of Directors are appointed for a 4- year period, and the period for the Board ran from 2010 to Three members are appointed by the City of Copenhagen and three by the Danish State. Two members are staff-elected representatives. The election procedure for this is set out on the company s website. The Company has not drawn up a policy regarding the gender composition of the Board of Directors, since six of the eight directors are appointed by the company's owners, and the remaining two are elected directly by the employees. The Board of Directors held seven Board meetings in 2013 and two written votes were held. The Board meetings and meetings of the audit committee are laid down before the start of the year. Directors' fees are set at the annual partnership meeting of the company's owners. Fees for the year 2013 amounted to: Chairman of the Board Deputy Chairman of the Board Ordinary Board members The fee is otherwise unchanged for 2014 There is no fee paid to the audit committee. 11

13 In line with previous years, a Board of Directors evaluation has been conducted. The evaluation is conducted by the individual members filling out a questionnaire anonymously to indicate their opinion of, among other things, the format of the meetings and material for the meetings of the Board of Directors and the audit committee, methods adopted by the Board of Directors and the audit committee, follow-up and implementation of decisions taken, the work of the Chairman, cooperation between the Board of Directors and the Executive Board, etc. A review of the rules of procedure also takes place in connection with the evaluation. The board, which also forms the total audit committee, has the following composition on 1 January 2014: Carsten Koch - Director (Chairman of the Board of Directors) Management duties: Chairman of the Copenhagen Port Pension Fund, Arealudviklingsselskabet Fredericia C P/S, Forca A/S and Vækstfonden Vice-Chairman of Sund & Bælt Holding A/S and Femern A/S. Board member of Øresundsbro Konsortiet I/S, Dades A/S, the investment association Maj Invest, Kærkommen Holding APS, Nordgroup A/S, GES Investment Services Danmark A/S and Pluss Leadership A/S Also Chairman of the Employment Council. Born Appointed in 2008, reappointed in 2010 and Mads Lebech - CEO, Danish Industry Foundation (Vice-Chairman of the Board, Chairman of the Audit Committee) Management duties: Vice-chairman of Tivoli A/S, Chairman of Ordrupgaards Advisory Board and the Tourism Growth Council and the the urban development company Nærheden - Fremtidens Forstad, as well as a board member of, among others, KAB Boligselskab, the Frederiksberg Fund and Copenhagen Malmö Port AB. Born Appointed in 2010 Agneta Björkman - Director, Vera Consultancy Management duties: Chairman of the Board of Directors of Entreprenørfirmaet Nordkysten A/S and of Holdingselskabet Nordkysten ApS. Member of the board of the Port of Århus, Copenhagen Port Pension Fund, Monyx Financial Group AB, Elkysten A/S and member of the Board of Governors in Realdania. Born Appointed in 2008, reappointed in 2010 Lars Berg Dueholm - Lawyer Management duties: Member of the City of Copenhagen's City Council for Liberal Alliance. Born Appointed in 2014 John Becher Krommes (staff representative) - Semi-skilled worker - Management duties: Shop steward 3F. Born Elected in 2008, re-elected in 2010 and 2014 Peter Maskell - Professor, Copenhagen Business School Management duties: Member of Board of Directors of DJØF's Forlag A/S and Copenhagen Malmö Port AB. Born Appointed in 2008, reappointed in

14 Nina Dahle Rasmussen (staff representative) - Accountancy manager. Born Elected in 2010, re-elected in 2014 Lars Weiss - Vice-Chairman of the City Council Management duties: Member of the City of Copenhagen's City Council for the Social Democrats, board member of Copenhagen Malmö Port AB, I/S SMOKA and board member of ARC / S Born Appointed in September 2011, re-appointed in The company's executive board consists of: Jens Kramer Mikkelsen - CEO Management duties: Chairman of Dansk Fitness & Helse Organisation, Sankt Annæ Gymnasium, Copenhagen Goodwill Ambassadors Corps' Advisory Board, Projektselskabet FN-Byen P/S and Komplementarselskabet FN-Byen ApS. Member of the Board of Directors of Copenhagen Harbour Pension Fund and DGI-Byen. Born Main elements of control and risk management systems CPH City & Port Development takes an active role in relation to the risks associated with the company s activities and with prioritising the measures that the company can take to minimise the risks. A number of risks may be influenced by CPH City & Port Development s own decisions, while others are primarily caused by external circumstances, whose impact the company is only to a limited extent able to affect or reduce These risks include both risks associated with the Company's business areas and other risks. The identification and prioritisation of efforts concerning risks takes place at a general level in connection with the Board s strategy work Besides risk aspects connected with the submission of accounts, there is a particular focus at the level of the Board of Directors on business risks, financial risks and insurance risks The specific risk factors are discussed further in Section 10. The Executive Board has established processes and procedures which guarantee that the identification and prioritisation of risks is incorporated into the day-to-day organisation of work in the company Risk aspects in connection with the submission of accounts CPH City & Port Development s risk management and internal controls concerning the submission of accounts are organised with a view to minimising the risks of significant errors or irregularities in the accounts and ensuring that the submission of external annual and part-annual reports takes place in accordance with the Danish Financial Statements Act. Before the submission of accounts, the main items, processes and procedures in connection with the submission of accounts are examined with a view to identifying the risks. Within CPH City & Port Development, the main risks concerning individual items in the accounts are connected with the valuation of investment properties and also the company s debt portfolio. After a recommendation from the Executive Board, the Board of Directors approves the principles of the valuation of the company s investment properties The principles are presented at least once a year. In addition, the Board of Directors can monitor from the regular reporting on the sale of investment properties whether the valuation of specific property is in accordance with market developments. The Board of Directors has also adopted the principle that, roughly every five years, external assessments of the value of the investment properties must be obtained from an independent party in support of the valuation in the annual accounts. Each year, the Board of Directors approves a financial strategy that manages and reports on the daily administration of the debt portfolio. The debt portfolio is managed by an external party with considerable expertise and experience in this area. A special declaration from the external party s auditor is received concerning the practical performance of the financial management. This declaration confirms that the established procedures and internal 13

15 controls are sound, and that the risks of significant errors or irregularities in the accounts are thereby minimised. Specific controls are established for account items concerning the debt portfolio received from the portfolio manager. In addition, identified risks at the time of submission of the accounts are countered by incorporating a number of management-approved policies and other governing documents such as procedures, certification rules and reporting instructions. The management s approach to good risk management and internal control is expressed in and communicated via these documents. The documents are available through the company's internal information systems. The aim is, among other things, to ensure that employees are familiar with their responsibilities and powers within the organisation. In order to ensure that the aims and policies decided upon by the Board of Directors and the management are achieved, and to identify and correct any errors and irregularities, the Executive Board has implemented a control environment. The control environment consists of, among other things, clear procedures for making the necessary arrangements and certification in connection with purchase and sale and ensuring functional separations where there are specific risks of error and/or fraud. This is supported by, among other things, the company s IT systems, which ensure that invoices can only be approved by duly authorised employees. In terms of IT, controls have been implemented concerning the use and modification of the company s IT systems and established ITbased emergency response plans. The company s economic development is followed closely by the Board of Directors, the Executive Board and the management generally. Quarterly accounts are drawn up, which are presented to the Board of Directors for approval, together with an internal review comparing the development of the results with the budget approved by the Board of Directors. Monthly reports on financial developments are drawn up for the Executive Board and other management. The reports cover operating and investment activities. A process has been established for the drafting of annual and part-annual reports with, among other things, check-lists for ensuring the provision of correct information and documentation for compliance with the Danish Financial Statements Act. 8. Organisation and employees The company is aware that the organization must be able to continuously adapt to changes and that it must be possible for the changes to be implemented quickly. The changes are implemented in order to optimize the management of and interaction between the company's business areas. Based on CPH City & Port Development's business strategy, the company's management has a continual focus on ensuring that the company's employees have the necessary skills. The company's value increase occurs through the composition, development and retention of the right skills. The company has had a goal of reducing absence due to illness, and by the end of 2013, the company had achieved the objective of achieving an absenteeism level of 2.9%. The reduction has meant that the employees were at work for three days more on average in 2013 than in The goal was achieved through dialogue in the Cooperation Committee and a continuous focus on sick leave in the company. It is expected that the low level of sick leave can be maintained by retaining this focus in There are various offers in the daily life of the employees in order to promote health, well-being and job satisfaction. These include a gym, yoga, massage scheme, influenza vaccination and health check. A staff seminar was held for all employees in the company in the autumn of The topic was health promotion, with a focus on health and the physical and psychological working environment. The aim was to provide employees with practical input for a healthier working and social life, and thus to achieve healthier employees, increased well-being and possibly a reduction in the level of absenteeism. At the end of 2013, CPH City & Port Development had 111 employees. Their average age is 47 years and there are 43 women and 68 men employed. The company's senior management team consists of 13 people, six women and seven men. The employee groups consist of 82 salaried employees and 29 specialist workers. The salaried employees consist of, among others, economists, lawyers, town planners, engineers, maritime workers, property inspectors, office employees, etc. The specialist workers are engaged in the operation and maintenance of the company s development areas and in Copenhagen Port. 14

16 9. Corporate aspects CPH City & Port Development was formed on 26 October 2007 with an accounting effect on 1 January 2007 in accordance with the Act on Metroselskabet I/S and Arealudviklingsselskabet I/S, which was enacted in June The company is a partnership that is owned by the City of Copenhagen (55%) and the Danish State (45%). The stakeholders are jointly and severally liable to an unlimited extent for the company s obligations. The object of the company is, on a commercial basis, to develop the areas in Ørestad and Copenhagen Port and manage port operations in Copenhagen Port. The operational part of port operation is managed by Copenhagen Malmö Port AB (CMP), which is a Swedish limited liability company, in which CPH City & Port Development has a 50% stake. The remainder is owned by Malmö Municipality and a number of private shareholders. CPH City & Port Development also has stakes in the following companies: FN-Byen P/S with associated general partner company. FN-Byen P/S is owned 98.3% by CPH City & Port Development and 0.8% by NKM ApS. The object of the company is to erect properties on Marmormolen. Byggemodningsselskabet Marmormolen P/S and associated general partner company. The company is owned 90% by CPH City & Port Development and 10% by N&S P/S. The object of the company is to develop Marmormolen. DanLink-Udvikling P/S and associated general partner company. CPH City & Port Development and TK Development each own 50% of the limited partnership. The object of the company is to develop Amerika Plads. Projektselskabet Marmorbyen P/S and associated general partner company. The company is owned 49.99% by Byggemodningsselskabet Marmormolen P/S and 50.01% by Pensam. The company was established in 2013 and its purpose is to own and rent out homes on Marmormolen. Ørestad Down Town P/S and associated general partner company. The company is owned 40% by CPH City and Port Development and 60% by NCC Property Development A/S. The purpose of the company, which was established in 2011, is to develop the area Ørestad Down Town. Harbour P/S and associated general partner company. The company is owned 8.5% by CPH City & Port Development, 45.75% by ATP Ejendomme and 45.75% by PensionDanmark. The purpose of the company, which was established in 2011, is to own and rent out UN City and to develop areas on Marmolen and Langelinie. 15

17 Company structure as of 31 December Risk factors Risk factors for business areas Area development The value of the company's development properties as of 31 December 2013 is DKK million and thus forms the most important part of CPH City & Port Development s total tangible fixed assets and earnings basis in the longer term. CPH City & Port Development s sale of areas (building rights) in urban development areas for residential and commercial purposes depends on whether the market needs new areas for homes or for commercial purposes. Demand depends primarily on the economic situation, but also on competition with other urban development areas and demographic developments in Copenhagen. The property market s dependence on changes in the economic situation leads to sharp swings in sales from year to year, while the business cycle also affects pricing. Economic conditions will therefore have a major impact on the basis for value creation in the company in both the short and long term. The company s time horizon is very long-term because current area holdings are expected to have to be sold over the next years. Over such a long period, there will naturally be periods with low sales and periods with high sales, depending on the evolution of the economic situation. In recent years, sales have been relatively limited. In 2013, for the first time in several years, major contracts were concluded for the sale of building rights and a single rental property. Agreements have also been entered into that are expected to be finally completed during There is therefore a possibility that sales in 2013 will be above the long-term level. The company s strategy is to continue the development of new urban areas so that demand can be met when the market turns. The strategy is also as far as possible to have a varied range of areas available for the market within the company s development areas, which minimises fluctuations in the rate of sales. Areas for both residential and commercial purposes are therefore offered in various parts of the city, and also areas with differing characteristics and price levels. 16

18 The level of development is adapted continuously to the expected market development so that new investments in urban development are tailored to the rate of sales. An important precondition for being able to develop the areas in line with market demand is that the necessary planning basis is provided with conditions that meet market needs. The company is engaged in a close and constructive dialogue about this with the City of Copenhagen. Another important precondition for the development and sale of the areas is that the new urban areas have the characteristics that the market demands. Work is performed continuously to collect information on this and develop the urban areas accordingly, which, all things being equal, helps cut the risk of flagging sales. Leasing The value of CPH City & Port Development's lease properties is assessed at DKK million as at 31 December 2013, which is equivalent to around 21% of the value of the total investment properties and 18% of the tangible fixed assets. The greatest risk for CPH City & Port Development s turnover and income from leasing activities is economic recession, as has been the case in recent years. The risk consists in a fall in market rents, an increase in the vacancy rate or the occurrence of substantial losses on leases owing to nonpayment. The entire portfolio of leases consists of a wide range of different leases, which helps to limit the risk of being hit hard by falling demand for certain types of leases. The rentals are continuously improved, but major improvement works are not initiated until after entering into a rental agreement, which in the long term can fund the costs of the improvements. Broken down by income, the leases are in the following main areas: Storage/showrooms 36% Land 33% Office leases 19% Areas of water 8% Other leases 4% 100% Building leases cover leases for offices, for stores and for other purposes such as catering, etc. The portfolio comprises both older warehouse leases and modernised office leases with good locations. As of 31 December 2013, the vacancy rate for offices is calculated at 8.2% and at 5.8% for storage leases. The evolution of the vacancy rate for the company s building leases more or less tracks the evolution of the market in Greater Copenhagen. The vacancy rate for the company s building leases is generally highest for leases with a low market rent. Area leases concern primarily areas in Nordhavnen and Sydhavnen. In a number of the areas, lessees have invested in their own buildings and plant, which helps cut the risk of tenants moving out. Water area leases cover, among other things, leasing to sailing clubs, etc. The value of these leases is not included as investment properties in the accounts, but are included at cost price. The company is also actively engaged in reducing the risk of vacancies going forward by primarily concluding lease agreements with relatively long non-termination periods. Credit assessment of major new tenants is undertaken, and the collection of prepaid rent (deposit) cuts the risk of direct losses. In previous years, direct losses on debtors from leases were very limited compared to the company's rental income. Parking As of 31 December 2013, the value of CPH City & Port Development s carparks was put at just over DKK million (fair value), equivalent to around 9% of the tangible fixed assets. The greatest risk for value creation within the parking segment is that urban development is spread between large areas, and it thereby becomes difficult to utilise the parking capacity effectively. 17

19 The finances of the carparks depend on the construction of buildings for both residential and commercial purposes, as the double exploitation will increase the capacity utilization of the parking facilities. Investment in new parking facilities is adapted to the rate of expansion in the new urban development areas. In the new development areas, investments occur firstly in temporary ground-level carparks, while major investments in parking facilities in structures are only made when demand is sufficient. Demand for parking spaces in the various areas is affected primarily by the number of dwellings and jobs in the immediate area and by the price level for parking, while general economic conditions affect only affect turnover in the parking facilities to a limited extent. The parent company CPH City & Port Development owns and operates a total of more than parking spaces in parking facilities or at ground level. There are also 800 parking spaces in the joint venture company DanLink-Udvikling P/S. Agreements have been concluded for fixed subscription payment with nearly customers, of which about are business customers and nearly are for private use. Permanent customers account for approximately 73% of revenue. The remainder consists of customers who pay cash. The result for parking is thus dependent to a very limited extent on individual parking facilities or on individual customers There are a number of areas where the company s parking facilities are exposed to competition from similar facilities or from free on-street parking. All other things being equal, the general trend within parking for higher levels of payment for parking in urban areas benefits the company s parking activities. Developments in the profit generated by the parking facilities may be affected by the general competition between various forms of transport, but it is considered that major changes in this regard can only affect revenue levels in the very long term. Port operations The value of the tangible fixed assets used for port operations amounts to just over DKK million, equivalent to around 10% of the total tangible fixed assets. The fixed assets consist primarily of buildings, quays, wharves and other port facilities used for commercial port operations. The bulk of the facilities are leased to the 50%-owned CMP, which handles the company s port operation activities. CMP similarly handles the operation of the commercial port in Malmö. In 2013, the total rent payment from CMP to CPH City & Port Development was just over DKK 39 million. According to the agreement with CMP, rent payments will increase over the coming years. In addition to the rent, CPH City & Port Development receives a share in the profits from CMP, which in 2013 amounted to approximately DKK 30 million. The value of the stake in CMP is recognized as DKK 174 million using the equity method. Port operation is affected by general economic conditions, and CMP s turnover and results have consequently also been hit by the economic slowdown in recent years. CMP s activities are spread between a number of different business areas and are also spread between activities in Malmö and in Copenhagen, which do not necessarily experience the same business cycles. CMP s turnover is split between many different customers, many of whom have a relatively strong financial background. The combined port operation activities therefore have a balanced risk profile, which has helped reduce the fall in income during the recession over the last few years. A proportion of CMP s revenue is achieved in SEK. CPH City & Port Development does not cover the currency risk arising as a result of this because, in the long term, this is deemed to be limited relative to CPH City & Port Development s total revenue. CPH City & Port Development invests in new port facilities when the evolution of port turnover or urban development makes this necessary. The primary port facilities are leased to CMP, and new investments in port facilities are usually initiated only if an agreement has been concluded with CMP concerning rent payment for this. An example of this is the recently completed investment in a new cruise quay in Norhavehavnen. 18

20 Financial risks The financial risk related to debt is a significant area of risk for CPH City & Port Development. At the end of 2013, CPH City & Port Development had total nominal debts to credit institutions of DKK 13.6 billion. Based on current expectations for operational earnings, sales and investments, debts are expected to decline slightly over the next 4-5 years, after which debt levels are expected to fall. The cash generated from operations is expected to cover an increasing share of the interest expenses from the debt. Under the special formation Act for the company (Act on Metroselskabet I/S and Arealudviklingsselskabet I/S), the company can fund its activities via government loans on favourable terms. The company s borrowing is regulated by a tripartite agreement between the National Bank of Denmark, the Danish Ministry of Transport and CPH City & Port Development. The agreement contains guidelines on what kinds of financial instruments and loan agreements the company can arrange to be included in the loan portfolio. The loans are typically raised as subsidiary loans from the National Bank of Denmark, which may be converted using e.g. interest rate SWAPS so that the desired risk profile is achieved. The objective for financial management is to achieve the lowest possible real financing costs over a longer time period, but taking account of an acceptable level of fluctuations between results for the individual years. The aim is to keep the real funding costs below 3% p.a., which has been achieved in all years since the formation of the company. The framework for the company s financial transactions is laid down once a year by the Board of Directors with the adoption of a financial strategy and funding instructions. The overall risk profile is low. In 2014,there will be refinancing for approximately DKK million. Currency risk Under the guidelines of the tripartite agreement and the finance strategy adopted by the Board of Directors, the company s loan portfolio is only ultimately exposed to DKK and EUR. In the light of the historically low fluctuations between the two currencies, the exposure in EUR is not considered to pose a material financial risk. The chosen split between the two currencies will depend on relative changes in interest rates for the currencies As of 31 December 2013, 74% of the gross debt was placed in DKK and 26% in EUR. The currency risk on a 1% change in the EUR rate is DKK 40 million. Interest rate risk The distribution of the total debt portfolio across different types of interest rate (loans bearing fixed, variable or real interest rates) is laid down in the finance strategy, but is otherwise considered continuously dependent on developments on financial markets. In setting the debt distribution, the link between the development of financing costs (equity and liabilities) and the company s revenues (assets) is taken into account. Analysts have indicated that, given its overall risk profile, the company can advantageously use all three debt types within its portfolio. The aim is for around 50% of the debt in the longer term to be invested in loans bearing real interest, with the rest being distributed approximately equally between loans paying a nominal fixed rate and loans with a variable interest rate.. As of 31 December 2013, 32% of the debt bore a fixed interest rate, 33% was based on real interest rates and 35% bore a variable interest rate. The portion of the portfolio bearing a real interest rate, which primarily consists of loan agreements with relatively long terms, is expected to increase in Table 6. Relative distribution of debt by interest rate type on 31 December 2012 and 2013 (%) Variable interest rate Fixed interest rate Real interest rate Total

21 The duration of the debt portfolio is put at 5.8 years as of 31 December 2013, which is the combined weight of a duration of 2.0 years for the nominal debt part and 12.1 years for the real interest ratebased debt part. The exchange rate sensitivity is put at DKK 9 million for a 1 basis point (0.01%) change in the interest rate curve. Credit risks Financial credit risks consist in counterparties not fulfilling their commitments to CPH City & Port Development, either in relation to derived financial instruments or in the investment of excess liquidity. Interest rate and foreign currency SWAPS are only entered into with the most credit-worthy Danish and foreign institutions and in accordance with the guidelines in the tripartite agreement with the National Bank of Denmark and the Danish Ministry of Transport. The aim is to limit counterparty risk as far as possible. Counterparty risks are managed and monitored continuously within a specific line and limit system, which lays down the principles for assessing these risks and a maximum for what scale of risks is acceptable for each counterparty. The latter form of risk is measured relative to the counterparty s rating awarded by the international rating agencies. The company only enters into agreements with counterparties if there is a credit support annex (CSA). The credit risk of these agreements is assessed to be 0. At times the company has excess liquidity which is invested as a bank deposit until the expected disposal. At the end of 2013, the liquidity reserve was DKK 0 million The excess liquidity in the parent company is only invested in financial institutions with a rating of at least A+/A1. Excess liquidity of up to DKK 100 million that is to be used for ongoing operation may, however, be invested on a day-today basis with counterparties with a rating below A+/1, but within the A category. Liquidity risk CPH City & Port Development has a very limited liquidity risk because, via the Act on Metroselskabet I/S and Arealudviklingsselskabet I/S and the tripartite agreement with the Danish National Bank and the Danish Ministry of Transport, the company is able to raise loans from the National Bank of Denmark to fund the company s activities. Loans can be raised at very short notice. In addition, the company and its subsidiaries have drawing rights (overdraft facility) with its principal bank of DKK 100 million. By the end of 2013, CPH City & Port Development had drawn DKK 145 million on this overdraft. However, the amount was more than covered by the subsidiary companies' deposits. Other risks Insurances CPH City & Port Development has taken out a number of insurance policies concerning the company s tangible fixed assets to cover against possible damage. These include insurances for buildings, equipment, motor vehicles and movable property. Part of management responsibility entails adopting an active approach to damage arising and considering measures to prevent damage so that the company s total risk costs are reduced over time. Insurance policies have also been taken out concerning liability, including the liability of the Board of Directors and the Executive Board, and contract works insurances in connection with major construction projects. Once a year, the Board of Directors adopts an insurance strategy and reviews the company s current insurance cover. The company's insurance portfolio was put out to tender in Environment CPH City & Port Development has no activities that can in themselves give rise to material environmental damage. Nevertheless, some of the company s tenants engage in activities that may affect the environment to a certain extent. All rent contracts incorporate a requirement for tenants to clean up the areas on vacating the premises. Alternatively, it is agreed that the tenant must, on vacating the premises, pay an amount corresponding to the clean-up costs. CPH City & Port Development accordingly agrees to clean up the areas if this is required. From amounts paid from previous tenants, DKK 19 million has been used during 2013 to clean up the Århusgade district, among others. In connection with the sale of property CPH City & Port Development accepts in some cases to pay the costs for decontamination of the area. As of 31 December 2012, DKK 37 million has been allocated for such environmental commitments. 20

22 Some of the company s areas comprise backfilled material and may be contaminated. In connection with the sale of areas (building rights), an open process is conducted with respect to purchasers regarding any risk of contamination. As a rule, sale agreements set out who is to cover any additional costs for clean-up in connection with use of the areas. This eliminates any risk of legal disputes in this regard. There is no complete survey of the scale of contamination, but this has been taken into account in the assessment of the value of the company s investment properties. Law The company principally has legal risks in connection with the conclusion of rent contracts and sales contracts. Standard rent contracts have been drawn up for all leases. The rent contracts are examined regularly with a view to ensuring that they reflect legislation and practice in effect in this area. The company has historically had very few legal disputes with tenants. Sale contracts are also standardised to some extent, but in many cases require adaptation to specific cases. The company has its own legal experts, but calls in external legal assistance in any major property deals in order to minimise the risk of subsequent legal disputes. Public works contracts The company continuously invests relatively large amounts in port facilities, car parks and general infrastructure, etc. There is a continuous risk of construction projects not running to budget or not being completed by the expected time. The company has its own personnel with considerable experience of the areas in question, and external expertise is called in as necessary to manage the largest and most complicated projects. Uncertainties of calculation and measurement A number of material accounting items cannot be measured reliably, but must be determined on the basis of an estimate, with uncertainty arising during the calculation and measurement of the items. The main items where uncertainty may exist in respect of accounting items are the assessment of the fair value of the company s investment properties and the company s long-term debt. However, the items are determined as far as possible on the basis of external information and on generally accepted methods. With respect to the Company's investment properties, the values are assessed by calculating the present value of expected future cash flow, which is also the method typically employed by market players. The uncertainty of the assessment relates to some of the central conditions in the calculation such as capitalisation factors, sale prices and time of sale. The method of assessing the value of the investment properties is further described in note 13 to the accounts, which also shows sensitivity to the changes in the central conditions. As far as the present value of the company s long-term debt is concerned, the present value has been assessed in accordance with current methods. The assessment has been conducted by Sund & Bælt Partner A/S, to whom the task of managing the company s debt portfolio has been outsourced. Reconciliation of the fair values relative to the fair values assessed by the counterparties has also been carried out. The reconciliation has supported the completeness of the transaction registration and has revealed only marginal departures from the counterparties values. 21

23 11. Financial review Financial review Result The profit for the year was DKK million, compared to DKK -922 million in In addition to an improvement in operating profit, the profit growth also relates to increased share of profit from subsidiaries and joint ventures, decreasing net financial costs and fair value adjustment of the company's debts. Net sales in 2013 amounted to DKK 418 million, which is an increase of DKK 96 million compared to the previous year, representing approximately 30%. The increase can be attributed to, among other things, increased revenues from receipt of soil in Nordhavnen. In addition, there was temporary rental income from the UN City Campus 1 from the property's completion in early 2013 until its transfer to the coming owner on 1 May 2013 and a general increase in rental income from the company's property portfolio. The increase in rental income is a consequence of implemented renovations of older warehouses and the leasing of vacant land. As in previous years, there has also been an increase in revenue from the rental of port facilities to CMP and from parking activities. For 2013, the value adjustment of the investment properties amounted to DKK 384 million, compared to DKK -280 million in The changes in fair value are equivalent to approximately 4% of the value of the investment properties. The valuations of the investment properties that form the basis for the changes in fair value are performed on the basis of, among other things, a number of contracts for the sale of building rights concluded during Staff costs and other external costs together represent DKK 178 million, which is an increase of DKK 5 million from The increase relates to costs for receiving soil in Nordhavnen, which has first had full effect from 2013, and rising property taxes. The average number of employees in 2013 was 111, compared to 110 in In 2013, depreciations amounted to DKK 97 million, which is an increase of DKK 44 million compared to the year before. The increase is almost entirely attributable to the depreciation of the facility for receiving soil in Nordhavnen. Primary operating profit was DKK 529 million, compared to DKK -182 million in In 2013, cash flow from primary operations (EBITDA) was DKK 244 million. The company has thus come a step closer to being able to service its debts with cash flow from primary operations. 22

24 The share of profits from the company's subsidiaries was DKK 99 million, compared to DKK -24 million the previous year. A considerable proportion of this relates to FN-Byen P/S, which in 2013 largely completed the establishment of the UN City Campus 1 and thus uncovered the significant risks in the project. The share of profit from joint ventures of DKK 30 million (DKK 38 million in 2012) relates primarily to CMP, while DanLink-Udvikling P/S produced a result close to 0. In 2013, the net financial costs were DKK 325 million, which is a decrease of DKK 146 million compared to the year before. As the net debt has remained largely unchanged in relation to 2012, the decrease can be attributed to implemented refinancing carried out over the past couple of years with a low interest rate, plus the fact that the interest costs on the index-based loans have declined as a result of the low inflation in Interest rates increased during 2013, which means that the fair value of the company's debt portfolio has declined. A fair value adjustment of debt of DKK 760 million was therefore recognised in the result. Since the company's inception, the total fair value adjustment of debt amounted to DKK million. Balance sheet At the end of 2013, the total balance was DKK million (DKK million in 2012). Tangible fixed assets amounted to DKK million, which is a decrease of DKK 327 million compared to The tangible fixed assets are reduced as a result of the sale of investment properties for DKK million, and increased through investments (DKK 716 million), contribution to the Metro for Nordhavnen (DKK 934million) and changes in fair value of investment properties (DKK 384 million) At the end of 2013, the total financial assets amount to DKK 592 million, which is DKK 260 million higher than in The increase is primarily attributable to the addition of an ownership stake of 8.5% in Harbour P/S, which in 2013 took over ownership of the UN City Campus 1 and also owns land on Marmormolen and Langeline, which will be developed. At the same time, the value of the equity holdings in subsidiaries increased as a result of the accounting profits in the companies in Receivables increased by DKK 209 million during The increase is primarily attributable to receivables from the sale of property, since the sales sums from some of the completed sales have not yet been released. Equity after the transferred result for 2013 is calculated at DKK million. Of this, DKK million is attributable to the accumulated fair value adjustment of borrowings affecting the result since the company's inception. The non-current liabilities, including the short-term part, amounts to DKK million, which is a decrease of DKK 916 million compared to the year before. Including net cash flow and bank debt, it is a decrease of DKK 766 million. The decrease is primarily attributable to the fact that the fair value of the company's debt portfolio has decreased by DKK 760 million during The nominal value of the company's debt is therefore almost on a par with the previous year. Outlook for 2014 and future years In terms of its financial management, the company s management focuses closely on long-term value creation in the company. The company's finances since its formation has also been burdened with negative fair value adjustment of borrowings due to interest rate increases. The total fair value adjustment of borrowings since inception amount to a total of DKK million, which has affected the results and equity negatively. These are unrealized items that will be carried back to the result as the loans are repaid. Excluding the effect of fair value adjustment of borrowings, equity at the end of 2013 was DKK million. 23

25 Since the company's inception in 2007, the economic conditions, particularly the situation in the real estate market, have been unfavourable for the company. Meanwhile, two legislative amendments of the VAT law and of property taxation affected the value of CPH City & Port Development's properties and thus the profit and equity by an estimated DKK million was the first year that broke several years of negative results, and it is expected that the favourable trend can be sustained in A profit is therefore expected of DKK 175 million before fair value adjustment of borrowings. A profit of DKK 110 million is expected in the case of the primary operations, excluding fair value adjustment of investment properties. The cash flow from primary operations will then amount to more than DKK 200 million. Based on the outlook for 2014 and estimates of the development in the coming years, it is considered possible to restore equity within a period of 10 years. With increasing cash flow from sales and the primary operations, the debt is expected to decrease over the coming years, even though investments are still required in infrastructure in connection with urban development. At the end of 2014, approximately DKK million of the total debt of approximately DKK million must be refinanced. The refinancing will be covered by loans from the National Bank of Denmark under existing agreements. The company's liquidity risk is therefore very low, and the annual report has been prepared on the assumption of continued operation. Events after the end of the financial year After the end of the financial year there have been no events of material importance for the annual accounts or for the annual report generally. 24

26 Income statement 1 January - 31 December 2013 Note DKK DKK Net sales Change in fair value investment properties other income Total income Personnel costs Other external costs Depreciation and amortisation of tangible and intangible fixed assets Operating profit Result of capital shares in subsidiaries after tax Result for capital shares in joint ventures after tax Result of capital shares in associated companies after tax Financial income Financial costs Result before fair value adjustment of debts Fair value adjustment of debts Net profit for the year Allocation of the results Proposed allocation of result Reserve for net revaluation in accordance with the equity method Profit carried forward

27 Balance sheet on 31 December 2013 Assets at 31 December Note 31 Dec Dec DKK DKK Investment properties Property and plant Port equipment Operating equipment Tangible fixed assets under construction Tangible fixed assets under construction, pre-paid Tangible fixed assets Capital shares in subsidiaries Capital shares in joint ventures Capital shares in associated companies Receivables from joint ventures from property sales Other financial assets Other securities Total financial assets Total non-current assets Receivables from sales and services Receivables from sale of investment properties Receivables from subsidiaries Receivables from joint ventures Other receivables Deferrals Total receivables Cash and cash equivalents Total current assets Assets at 31 December

28 Balance sheet on 31 December 2013 Total equity and liabilities at 31 December Note 31 Dec Dec DKK DKK Partnership capital Retained earnings Total equity Other allocated liabilities Provisions for liabilities Financial institutions Bonds Leasing liabilities Deposits Debt to the City of Copenhagen Total non-current liabilities Short-term part of non-current liabilities Bank debt Trade payables Debt to subsidiaries Debt to joint ventures Other current liabilities Deferred income from customers Total current liabilities Total liabilities Total equity and liabilities at 31 December Contingent liabilities etc. 25 Fees to auditors 26 Related parties and ownership 27 27

29 Cash flow statement 1 January - 31 December 2013 Note 31 Dec Dec DKK DKK Net profit for the year Adjustments Change in working capital Cash flow from operations before financial items Interest income and similar Interest payments and similar Cash flow from ordinary operations Cash flow from operations Purchase of tangible fixed assets Change in financial assets Sale of investment properties Sale of other tangible fixed assets Change in receivables concerning sale of property Proceeds received from subsidiaries and joint ventures Cash flow from investment activities Raising of loans, net revenue Repayment of debts Cash flows from financing activities Net cash flow Cash at beginning of year Cash at end of year Cash funds are broken down as follows: Cash and cash Cash at end of year

30 Total equity statement as of 31 December 2013 Partnership capital Retained earnings Total DKK DKK DKK Total equity on 1 January Exchange rate adjustment regarding independent foreign entities Reserve for net revaluation in accordance with the equity Result for the year Total equity at 31 December Exchange rate adjustment regarding independent foreign entities Reserve for net revaluation in accordance with the equity Net profit for the year Total equity at 31 December

31 1 Segment reporting Leasing Port Parking Area Tot DKK DKK DKK DKK DKK Income Costs Result before amortisation and depreciations Write-down and depreciation Result before financial items Total non-current assets Investment properties Property and plant Port equipment Operating equipment Tangible fixed assets under construction Material fixed assets under construction, prepayment Total financial assets Fixed assets in total Total current assets Receivables from property sales Total receivables Total current assets Total liabilities Accounts payable Other current liabilities Total current liabilities

32 1 Segment information (continued) 2012 Leasing 2012 Port 2012 Parking 2012 Area 2012 Tot DKK DKK DKK DKK DKK Income Costs Result before amortisation and depreciations Write-down and depreciation Result before financial items Total non-current assets Investment properties Property and plant Port equipment Operating equipment Tangible fixed assets under construction Financial assets Fixed assets in total Total current assets Receivables from property sales Total receivables Total current assets Total liabilities Accounts payable Other current liabilities Total current liabilities

33 Notes to the annual report DKK DKK Net sales Port income Rental income, properties Rental income, port Parking income Soil reception, port Other revenue Change in fair value investment properties Profit on sale of investment properties Change in fair value investment properties Personnel costs Wages Pension contributions Other costs for social insurance Other personnel costs Of which payments to the Executive Board and Board of Directors: Salaries for the Executive Board Other payments to the Executive Board Pensions for the Executive Board Board of Directors Other payments to the Executive Board include performance bonus for the Executive Board, which represents up to 10% of the annual salary. Average number of employees Other external costs Operating and administration costs Property taxes and duties Amortisation and depreciation of material and intangible fixed assets Buildings Port equipment of which soil depot Operating equipment Losses on assets

34 Notes to the annual report 7 Result of capital shares in subsidiaries after tax DKK 1 DKK Result of shares in subsidiaries after tax Result of capital shares in joint ventures after tax Result of shares in joint ventures after tax Result for capital shares in associated companies after tax Share of profits in associate companies after tax Financial income Interest income, bank Interest income, financial instruments Interest income, subsidiaries Interest income, City of Copenhagen Financial income from sales Income from financial assets Exchange rate adjustments Other financial income Financial costs Interest costs, bank Interest costs, financial instruments Interest costs, City of Copenhagen Losses on financial assets Financial leasing Exchange rate adjustments Other financial costs Fair value adjustment of debts Fair value adjustment of loans Fair value adjustment of foreign exchange and interest rate swaps Fair value adjustment, road debt, City of Copenhagen

35 Notes to the annual report 13 Tangible fixed assets Property, Investment Land and Port Operating fixed assets under properties buildings equipment equipment construction DKK DKK DKK DKK DKK Cost price 1 January Reclassification Additions Disposals during the period Transfers during the period Cost price 31 December Change in fair value 1 January Net write-up for the period The year s carry-back of previous year s write-up Change in fair value 31 December Amortisation and depreciation 1 January Reclassification Depreciation for the period Carried back depreciation and amortisation on assets sold Depreciation and amortisation 31 December Book value 31 December Depreciated over Including financially leased assets for The valuation of the investment properties is based on a discounting-back of expected future cash flows. Discounting factors of between 5% and 10% are adopted, depending on the quality, location and time horizon of the investment properties. CPH City & Port Development s investment properties are, on the balance sheet date of 31 December 2013, stated at a value of DKK million. The investment properties consist in part of a portfolio of lease properties at a value of DKK million and development properties (building land for sale) at a value of DKK million. A payment of DKK 934 million to Metroselskabet for the construction of the Metro to Nordhavnen, which is included in the the balance sheet as "Tangible fixed assets under construction, prepayment", is included in the total value of the development properties. The investment properties form the main part of CPH City & Port Development s asset base. Under accounting practice, the valuation must take place at present value (fair value). City & Port Development s development properties are of a size and nature that inherently lead to uncertainty in assessing the present value. This is exacerbated at times where actual sales are limited. To achieve greater certainty in the assessments, CPH City & Port Development arranged for an external assessment of values as of 31 December New external assessments will be obtained within a few years. The assessments as of 31 December 2012 are close to these assessments because account has been taken of the market information obtained via specific sale agreements or sale discussions in which the company participated during The value of the development property includes the value of the company s parking activities. 34

36 Notes to the annual report 13 Tangible fixed assets (continued) The method for valuing CPH City & Port Development s investment properties in the annual accounts is described below and supplemented with sensitivity calculations. Lease properties: In principle, all the company s lease properties are included in the assessment, except for areas laid out for port operation. Furthermore, the areas and buildings leased to associations and clubs and water area leases are exempt from the assessment. The portfolio of lease properties has been assessed by the capitalisation method since it is generally accepted that the current net rent can be maintained in the long term. In specific cases, account has been taken of the fact that certain properties become development properties as the company s areas are converted. The net rent capitalised is calculated as follows: Current rent - Correction for general vacancy - Operation and maintenance - Property taxes - Administration (3% of gross rent) = Net rent The net rent for vacant building leases is set at a carefully estimated market rent. The level of general vacancies for the building leases is laid down on the basis of market information for the specific categories (office leases 10%, and storage leases 4%) and will be modified in line with revised assessments in the market. The vacant areas are not valued, but then voids for the leased areas have not been taken into account either. Expenditure on operation and maintenance has been assessed on the basis of key figures per building type. The expenditure for special building renovation carried out to ensure the assessed rent income has been included in the key figures. The property taxes are specific property taxes levied in The capitalisation factor for the properties is laid down as being between 5.25 and 9.25%, depending on the characteristics of the lease. For a single lease, where the State is a tenant with a non-cancellation period of 24 years, a capitalisation figure of 3% is used. The capitalisation factors are based on market reports from experts. The capitalisation factors will be modified as changes are made in the market reports in question. The average capitalisation factor is assessed as 6.7%, compared to 6.4% in The increase is partly attributable to the increase in the market, partly to shifts in the portfolio. The capitalised net rent is added to the value of the prepaid rent, which is equivalent to 1½ month s rent in the case of quarterly invoicing and cash deposits on hand (DKK 34 million). Naturally, the total value of the lease properties is sensitive to changes in the yield requirement. If the average yield requirement increases by 1.0 percentage point, the present value is reduced from DKK million to DKK million. With a reduction in the yield requirement of 1.0 percentage point, the value will rise to DKK million. Value of lease properties in case of a change in the yield requirement Central Primary yield requirement (%) estimate, Present value of rental properties (DKK millions) Development properties: CPH City & Port Development s total areas included in the accounts as development properties cover in total a floor area of just under 5 million square metres, which is to be developed and sold over time. There is an approved local development plan or there is a local plan in preparation for roughly half the 5 million square metres of floor area. CPH City & Port Development thus has a very large proportion of the total accessible floor metres in the City of Copenhagen. The areas are to be developed as the market demands new areas. It is expected that the development perspective for such large areas will be up to 70 years. Sales levels have in recent years been characterised by a sluggish market with low demand. However, the market changed in 2013 and several sales were concluded and there are expectations of further sales in The expectations are based on specific sale discussions. The increase in value of such large areas is naturally subject to high levels of uncertainty. The uncertainty is partly linked to the effective date of disposal, and partly to the sale price. The sales completed in 2013 and the ongoing sales discussions have on average been slightly above the previous evaluation. 35

37 Notes to the annual report 13 Tangible fixed assets (continued) The value of the development properties is stated in accordance with the model as the discounted present value of future cash flows from development and sale of the properties. Cash flows consist of, on the one hand, expected sale income and, on the other hand, building maturation and development costs and costs for property taxes, etc. until final disposal. The model is based on a set of conditions concerning price development and time of disposal, with the current market situation being taken as the basis. The model approach to valuation means that the calculated present values increase as the realisation point approaches. Sensitivity analyses The total value of the development properties is, as of 31 December 2012, assessed as DKK million. Sensitivity in relation to changes in some of the central assumptions is set out in the tables below. Discount factor A real discount factor of 5% for the bulk of the development areas is employed in calculating the present value of future cash flows. For development areas with a long development perspective, a real discount factor of 10% has been adopted up to For sales already agreed, but where the sales price will only be paid at a later date, a discount rate of 3% is applied. The average discount rate is calculated at approximately 5.7% in real terms, which is 0.1 percentage points lower than in 2012, due to the fact that there is now greater clarity about the development of certain areas. In the case of a change in the real discount factor of +/- 1.0 percentage point, the calculated present value changes by approximately DKK -700/+900 million. Value of development properties in case of a change in the discount factor Central Real discount factor (%) estimate, Calculated present value (DKK millions) Time of sale It is assumed that the available almost 5 million sq.m. will be sold over a nearly 75-year period. The exact timing is difficult to predict accurately and will naturally depend on the general economic climate over the entire period and the attractiveness of the development areas relative to other locations in the metropolitan area. With a change of the date of sale of 1 year for all sales and the associated development costs, the present value would increase/decrease by approximately DKK 450 million. Value of development properties in case of change of the date of sale All sales All sales Time of sale brought Central postponed by forward by estimate 1 year Calculated present value Sales prices The model assessment of the present value of the development properties has been based on the present prices on the market for building rights. The prices adopted reflect the current market situation. Real price rises are not assumed over the approximately 75-year period in which the building rights are expected to be sold. As shown by the table below, a change of 5 percentage points in the sale prices achieved will produce a change of approximately DKK 400 million in the calculated present values. Value of development properties in case of changes in selling prices Change in price (%) Central Calculated present value (DKK millions)

38 Notes to the annual report 31 Dec Dec DKK DKK Capital shares in subsidiaries Cost at beginning of year Additions over the period 40 0 Disposals over the period Closing cost price Opening change in fair value Net profit for the year Premium 0 0 Carry-back of internal profit Closing change in fair value Book value at end of period Capital shares in subsidiaries are broken down as follows: Name Registere d office Registere d capital Voting and ownershi p share Byggemodningsselskabet Marmormolen P/S agenkomplementarselskab No. 1 ApS n FN-Byen P/S n Komplementarselskabet FN-Byen ApS n Copenh Copenhage Copenhage Copenhage DKK '000 DKK '000 DKK '000 DKK ' % % % % 31 Dec Dec DKK DKK Capital shares in joint ventures Cost at beginning of year Additions over the period 0 0 Disposals over the period Closing cost price Opening change in fair value Exchange rate adjustment, foreign joint venture Net profit for the year Dividends paid to parent company The period's disposals Closing change in fair value Book value at end of period Capital shares in joint ventures are broken down as follows: Name Registere d office Registere d capital Voting and ownershi p share Copenhagen Malmö Port AB Malmö, SE SEK % Kommanditaktieselskabet DanLink-Udvikling Copenhage DKK % DLU ApS Copenhage DKK % n '000 37

39 Notes to the annual report 31 Dec Dec DKK DKK Capital shares in associated companies Cost at beginning of year Additions over the period 0 0 The period's disposals Opening fair value adjustments Net profit for the year Dividends paid to parent company 0 0 The period's disposals 0 0 Closing change in fair value Book value end of the period Capital shares in associated companies are broken down as follows: Name office Ørestad Down Town P/S n Ørestad Down Town ApS n Registered Copenhage Copenhage Registere d capital DKK '000 DKK '000 Voting and ownershi p share % 80 40% 17 Other financial assets Other securities Receivabl es from joint ventures Other receivabl es DKK DKK DKK Book value as of 1 January Additions during the period Disposals during the period 0 0 Book value 31 December Receivables from joint ventures from property sales. The amounts will be repaid as the properties are sold. 18 Receivables from sale of investment properties 31 Dec Dec DKK DKK Deed of conveyance accounts and guarantees Reimbursement debtors Ørestad Of receivables from property sales, DKK 130 million fall due within the next 12 months. 38

40 Notes to the annual report 19 Other receivables Other receivables comprise interest receivable in respect of debts to credit institutions of DKK 99 million and receivables in respect of building maturation VAT of DKK 258 million, which is written down with the sale of the investment properties. 20 Cash and cash equivalents Agreements on cash-pool schemes have been concluded with Nordea, which comprises FN-Byen P/S and Komplementarselskab FN-Byen ApS and Byggemodningsselskabet Marmormolen P/S and Komplementarselskab No. 1 ApS. 21 Other allocated liabilities 31 Dec Dec DKK DKK Cost price 1 January Additions over the period Used over the period Book value end of the period Of which the due dates are expected to be Within 1 year Between 1 and 5 years After 5 years Re. property Environment Support sales measures fund DKK DKK DKK Cost price 1 January Additions over the period Used over the period Book value 31 December Provisions from the sale of property relate to obligations arising from the sale of land. Provisions for environmental measures relate to pollution liability in connection with the sale of the former DanLink areas and areas on Prøvestenen and in Nordhavnen. The insurance status statement as of 31 December 2013 for the Port Support Fund showed a premium reserve totalling DKK 0.1 million. The insurance reserve is assessed once a year. 39

41 Notes to the annual report 31 Dec Dec DKK DKK Total liabilities The company s total interest-bearing liabilities at present value are broken down as follows: Credit institutions Bonds Bank debt Leasing liabilities Debt to the City of Copenhagen The company s nominal debt for credit institutions and bonds is DKK The company s total interest-bearing debt obligation for credit institutions and the value of bonds, both measured at present value, can be broken down into the following currencies: DKK EUR Other In total 31 December December Credit institutions Interest-rate guarantee periods concerning financial obligations for credit institutions and the value of bonds may be further broken down as follows: DKK millions 0-1 years 1-2 years 2-3 years 3-4 years 4-5 years More than 5 years Total Present value Loans Interest rate swaps Currency swaps Total The debt to credit institutions and the value of bonds are broken down into the following interest types Variable interest rate 34.4% Fixed interest rate 32.2% Real interest 33.4% 100.0% The company s debts to credit institutions are entered including the value of interest and currency swaps. The combined value of interest and currency swaps as of 31 December 2013 is 885 million. The combined value of interest and currency swaps as of 31 December 2012 was DKK million. 40

42 Notes to the annual report 22 Total liabilities (continued) Debt to the City of Copenhagen Debts to the City of Copenhagen concern grants for the establishment of Nordhavnsvejen and debts concerning Bryggebroen. One third of the loan concerning road debt fell due at the start of the construction work in The remaining two thirds falls due when the road is taken into service, which is expected to be in The debt is indexed with the evolution of Statistics Denmark's index for the construction of roads and is entered in the accounts at the back-discounted present value. Debts concerning Bryggebroen fall due at DKK annually and are repaid in Leasing commitments 31 Dec Dec DKK DKK Commitments from financial leasing can be assessed as follows: Due within 1 year Due between 1 and 5 years Due after 5 years Future financing costs, financial leasing The group s financial leasing agreements concern a vehicle terminal and an administration and personnel building, which are leased to Copenhagen Malmö Port AB. The leasing contract includes an option to buy on the expiry of the leasing period. Both leasing agreements expire in Maturity of long-term debt Deposits Financial Debt to the Credit leasing debt institutions C h Short-term debt Due between 1 and 5 years Due after 5 years Total

43 Notes to the annual report 23 Bank debt Agreements on cash-pool schemes have been concluded with Nordea, which comprises FN-Byen P/S and Komplementarselskab FN-Byen ApS and Byggemodningsselskabet Marmormolen P/S and Komplementarselskab No. 1 ApS. 24 Accounts payable Accounts payable include interest payable on debt to credit institutions on by 31 December 2013 of DKK 136 million. As of 31 December 2012, the amount was DKK 162 million. 25 Contingent liabilities etc. Under the Act on Metroselskabet I/S and Arealudviklingsselskabet I/S, CPH City & Port Development must organise and implement the conversion of the port areas in Copenhagen no longer used for port operations. In assessing the properties, account has been taken of costs associated with the development of the areas no longer to be used for port operations. In order to be able to fulfil the Act s intentions, it may become necessary for CPH City & Port Development to contribute to special measures in relation to infrastructure and the aquatic environment, etc. that will not entail an increase in CPH City & Port Development s assets. CPH City & Port Development provide suretyship for a construction credit facility of DKK 200 million in Nordea paid to Projektselskabet Marmorbyen P/S. Via the special pension fund, former employees are entitled to public servant pensions. The pension fund does not accept new members. The last active member retired in CPH City & Port Development is obliged to extraordinarily pay the inadequate cover in the pension fund at any given time based on an actuarial assessment. The pension fund's assets on 31 December 2013 were DKK 277 million (compared to DKK 275 million on 31 December 2012) and the pension commitment including a 4% solvency margin was DKK 158 million (compared to DKK 174 million on 31 December 2012). The excess cover in the pension fund is DKK 119 million. It is considered that, during the life of the pension fund, there will be no need for CPH City & Port Development to pay extraordinary contributions to make up any inadequate cover. Contractual commitments CPH City & Port Development has concluded contracts with contractors concerning the establishment of multistorey carparks in Ørestad, backfilling in Nordhavnen, the establishment of a cruise quay and renovation work in Nordhavnen with a residual value of approx. DKK 463 million. The company has received guarantees relating to construction contracts for approximately DKK 329 million. In connection with sale agreements concluded in Ørestad, CPH City & Port Development is obliged to establish infrastructure in Ørestad and has special obligations to maintain infrastructure in the form of roads and wharves generally. There are also certain legal obligations to maintain listed properties in the property portfolio. The company has agreed, in connection with the sale/option of an area in Ørestad with a floor area of approximately square metres, that payment of the sale price depends on the purchaser s economic use of the area. There can only be additional payment to CPH City & Port Development. The company receives guarantees on entering into lease contracts. As of 31 December 2013, guarantees for a total of DKK 92 million have been received. The Company has concluded operational leasing agreements on rolling stock. The agreements run for 3-7 years. 42

44 Notes to the annual report 26 Audit fees Statutory Other Other Other audit statutory declarations services Total 2012 The National Audit Office Deloitte PricewaterhouseCoopers KPMG Total Related parties and ownership Controlling interest Registered office Basis The City of Copenhagen: Copenhagen Stakeholder The Danish State Denmark Stakeholder Other related parties CPH City & Port Development s parties cover subsidiaries, joint ventures and associated companies, cf. notes 14, 15 and 16. The company's owners, Board of Directors and Executive Board are also regarded as related parties. Transactions Transactions with related parties are made on market terms. CPH City & Port Development has had income and costs from Copenhagen Malmö Port AB in the form of rent income and payments for services in 2013 of DKK 40 million net. CPH City & Port Development has constructed a vehicle terminal and an administration and personnel building for Copenhagen Malmö Port AB via leasing. The leasing agreement has been established as an agreement between the parties with a term up to at least CPH City & Port Development sold a site to Byggemodningsselskabet Marmormolen P/S in 2013 for DKK 100 million. In addition, there are minor transactions between the parent company and subsidiaries, joint ventures and associated companies in the form of administration contributions and services. CPH City & Port Development was formed with an amount owed to the City of Copenhagen concerning contributions for the road link with Nordhavnen. As of 31 December 2012, the debt was included in the accounts at DKK 523 million, which forms the principal together with indexing and market value adjustment. Ownership The City of Copenhagen (55%) The Danish state (45%) 43

45 Notes to the annual report 31 Dec Dec DKK DKK Cash flow statement - adjustments Financial income Financial costs Fair value adjustment of debts Change in fair value investment properties Adjustment for realized sales Profit from the sale of fixed assets Depreciation and amortization for the period Income from capital shares in associated companies after tax Income from capital shares in joint ventures after tax Cash Flow - change in working capital Changes in accounts receivable Changes in other commitment provisions Change in suppliers etc Management duties Refer to the management report. 44

46 12. Accounting policies General As a partnership, CPH City & Port Development is covered by the provisions of the Danish Financial Statements Act governing the presentation of annual reports for accounting class A enterprises. In order to increase the transparency and information value of the annual report, By & Havn has chosen, as in previous years, that the preparation of the annual report shall follow the rules of reporting for class D enterprises (state-owned public companies). Because enterprises covered by accounting class A are not subject to the requirement to draw up group accounts, CPH City & Port Development has opted not to draw up group accounts. General information on calculation and measurement All income is recognised in the income statement as it is earned based on the following criteria: 1) delivery has taken place before the end of the accounting period, 2) there is a binding sale agreement, 3) the sale price has been established, and 4) at the time of sale, the payment has been received or may with reasonable certainty be expected to be received. Present change in fair value of investment properties, financial assets and commitments are included in the income statement. Also included in the income statement are any costs incurred in achieving the period s earnings, including depreciation, write-downs and obligations provided for and carrybacks as a result of modified accounting assessment of amounts that have previously been recognised in the income statement. The assets are included in the balance when, as a consequence of an earlier event, it is likely that future financial advantages will accrue to the partnership and the assets value can be measured reliably. Liabilities are included in the balance when the partnership, as a consequence of an earlier event, has a statutory or actual liability and it is likely that future financial advantages will flow from the partnership and the value of the liability can be measured reliably. On first recognition, assets and liabilities are measured at cost price. Measurement subsequent to initial inclusion is effected as described below for each item. When implementing recognition and measurements, predictable losses and risks arising prior to presentation of the annual report, and that confirm or invalidate conditions that exist on the balance sheet date, are taken into account. Treatment of capital shares in subsidiaries, joint ventures and associated companies in the parent company Capital shares in subsidiaries, joint ventures and associated companies are recognised and measured in accordance with the equity method. The relative share of the net profit for the year, less write-down of goodwill under the items Result of capital shares in joint ventures and subsidiaries and Income from capital shares in associated companies, is recognised in the income statement In the balance sheet under "Capital shares in subsidiaries", "Capital shares in joint ventures" and "Capital shares in associated companies", the proportionate ownership share of the companies' accounting intrinsic value is calculated in accordance with the parent company's accounting policies plus any goodwill. Conversion of foreign currencies Transactions in foreign currency are in the course of the period converted to the exchange rate prevailing on the date of the transaction. Gains and losses arising between the exchange rate prevailing on the date of the transaction and the exchange rate on the date of payment are recognised as a financial item in the income statement. 45

47 Receivables, liabilities and other monetary items in foreign currency that are not settled on the balance sheet date are converted to the exchange rate prevailing on the balance sheet date. The difference between the exchange rate prevailing on the balance sheet date and the exchange rate prevailing on the transaction date is recognised as a financial item in the income statement. If the partnership s foreign subsidiaries, associated companies and joint ventures are independent units, the Income statement is converted to average exchange rates, while the balance sheet items are converted to the exchange rate prevailing on the balance sheet date. Exchange rate adjustments arising in connection with the conversion of independent foreign companies equity capital at the beginning of the year, and exchange rate adjustments arising as a result of conversion of independent foreign companies Income statements at average exchange rates, are recognised directly on the equity capital Segment information Information is provided for net sales, operating profit before financial income and expenses, and assets and liabilities broken down for the business segments Area Development, Leasing, Parking and Port operation. The business segments coincide with the segments for which partial accounts will be drawn up in accordance with Article 7(1) of the Accounting Regulations for competitive activities, non-competitive activities and the financial area in CPH City and Port Development. Information on business segments is based on the company s return and risks and on the internal financial management. Area development consists of: Income from the sale of properties, including value adjustment of investment properties intended for development Activities broadly connected with area development, including costs for promoting the recreational use of the partnership s properties and income from the soil depot CPH City & Port Development's share of the items in subsidiaries, joint ventures and associated companies related to area development Other items not covered by the other business segments. Leasing consists of: Income from the leasing of building, area and water area leases Income from the sale of lease properties, including value adjustment of lease properties Costs of operation and maintenance of CPH City & Port Development s buildings and areas that are leased or expected to be leased Depreciation of the fixed installations concerning leasing. Port operations consist of: CPH City & Port Development s share of the items in the joint venture (Copenhagen Malmö Port AB) CPH City & Port Development s income from leasing fixed installations to joint venture (Copenhagen Malmö Port AB) Depreciation of fixed installations leased to joint venture (Copenhagen Malmö Port AB) Port income in CPH City & Port Development and the associated costs. Parking consists of: Income from parking on CPH City and Port Development's parking facilities Costs of operation and maintenance of CPH City & Port Development s parking facilities Operation and administration of parking facilities for K/S DanLink- Udvikling. There is only one geographic segment. 46

48 Distribution of the items included in the net profit for the year takes place, including profit before financial items. Segment assets comprise assets used directly in the operation of the segment. Segment liabilities include non-interest-based liabilities derived from the operation of the segment, including suppliers of goods and services and other debts. Income statement Income Net sales includes port income, rental income, parking revenues, income from soil reception and other revenue. Revenue is included in the income statement when delivery and risk transfer to the buyer has taken place before the end of the accounting period. Revenue is included ex. VAT and with the deduction of discounts in connection with the sale. Rent income is stated exclusive of cost reimbursements from the tenants in respect of heat because this amount outstanding is recognised in the balance sheet. Income from receiving soil is recognized as the soil is received from customers. Change in fair value of investment properties consist of realised profits from property sales and the period s calculated change in fair value. For the statement of change in fair value, see the section on investment properties. Profits from the sale of investment properties include gains on the estimated market value for properties considered to be sold at the time of the agreement. other income comprises income of a secondary nature relative to the partnership s main activity. Profits or losses on disposal of tangible fixed assets stated as the difference between a possible sale sum and the booked value are included under other income or other operating costs. Costs Personnel costs include wages, payments, pension contributions and other personnel costs for the partnership's employees, including the Executive Board and Board of Directors. Other external costs include the repair and maintenance of fixed installations and machinery, cleaning of fixed installations and buildings, insurances, property taxes, administration costs, etc. Depreciation Tangible fixed assets are depreciated on a straight-line basis over the expected usage period. The expected usage periods are as follows: Bridges, quays and other port facilities... up to 67 years. Buildings etc... up to 40 years. Leased fixed assets years Floating operating equipment years Other plant and equipment years The depreciation basis is the purchase price less any scrap value. Areas and investment properties are not depreciated. Investment properties are recognised at present value, cf. below. 47

49 Financial items Financial items comprise interest income and costs concerning corporate debt bonds, cash and cash equivalents and liabilities and are recognised with the amount concerning the financial year. Balance sheet Tangible fixed assets Tangible fixed assets are valued according to the following principles. Investment properties Investment properties are defined as properties not used in the company s operation, and which are owned with a view to achieving rental income and/or capital gains on sale. Investment properties are measured at present value in accordance with the models which, with the involvement of external professional valuers, were adopted at the time of the partnership's formation, taking account of the properties specific characteristics: The present value of the lease properties is measured at the capitalised value of the net rent for the individual lease properties. The capitalized value is calculated using a current market-based yield requirement. The present value of development areas is measured at the discounted-back value of expected cash flow for the individual development areas using a current market-based yield requirements for those areas. Principles, calculation methods and assumptions for the management's estimate of the properties' present values are set out in the note "Tangible fixed assets". Change in fair value of the investment properties are recognised in the income statement. Other tangible fixed assets. Other tangible fixed assets consist of property and plant, port facilities, operating equipment and fittings. The book value consists of the purchase price of the assets less depreciation and amortisation carried out. Value-enhancing main renovations and other major renovation work are activated as improvements. Depreciation assessment of tangible fixed assets The accounting value of tangible fixed assets that are not continuously measured at present value is assessed periodically to determine whether there is an indication of mark-down beyond what is expressed in normal depreciation. If this is the case, depreciation is carried out to the asset s lower recovery value The recovery value for the asset is stated as the higher of the net sale value and the capital value. If it is not possible to determine the recovery value for the individual asset, the depreciation need for the smallest group of assets is assessed in which a reliable recovery value can be laid down in an overall assessment. Head office properties and other assets where it is not possible to state a capital value as a result of the asset not in itself generating future cash flows, are reviewed for impairment together with the group of assets to which they can be attributed. Total financial assets For capital shares, refer to the description above in the section "Treatment of capital shares in subsidiaries, joint ventures and associated companies in the parent company". 48

50 Accounts receivable under financial assets are measured at amortised cost, which is usually equivalent to nominal value less write-downs to meet expected losses. Total receivables Receivables are valued at amortized cost, which largely corresponds to the nominal value or a lower net realizable value, which corresponds to the nominal value less provisions for losses. Write-downs for losses are stated on the basis of an individual assessment of the individual receivables and for receivables from sale together with a general writedown based on the partnership s experience. Other liabilities provided for Other provisions for liabilities include estimated costs for environmental measures relating to pollution liabilities. Other provisions for liabilities and charges are included when the partnership, as a result of an event which occurred prior to or on the balance sheet date, has a legal or actual liability and it is likely that economic advantage will have to be surrendered to redeem the liability. Total non-current liabilities and derivatives Debts to financing institutions and corporate bonds issued are measured at the time of loan raising at cost price, corresponding to the revenue received or deductions for transaction costs paid. After first recognition, corporate bonds issued and debt to financing institutions are recognised at present value. Changes in present value are recorded in the income statement. Derivative financial instruments designated as hedges for future cash flows in the form of variable interest payments are measured at present value. Changes in present value are recorded in the income statement. The short-term element of long-term debt is recognised under total current liabilities as Short-term element of total non-current liabilities. Deferrals Deferrals stated as assets cover costs paid concerning the subsequent account period. Deferred income from customers Prepayments received from customers recorded as liabilities mainly includes recoveries relating to income in the subsequent accounting periods. Other financial liabilities Other financial liabilities, which include bank debt, trade creditors and other debts, are measured at amortised cost, which is usually equivalent to nominal value. Cash flow statement The cash flow statement shows the company s cash flow for the period broken down between operating, investment and financing activity, the changes to the period s cash funds and the partnership's liquidity at the beginning and end of the period. Cash flow from operations Cash flow from operations are stated according to the indirect method as the period s primary operation, adjusted for non-cash profit items as depreciation and amortisation, provisions for liabilities and changes in working capital, interest payments received and made. Working capital covers current assets minus current liabilities, except for the "Short-term element of long-term debt", excluding the items included in cash funds Cash flow from investment activities Cash flows from the investment activity comprise cash flows from the purchase and sale of tangible and financial assets. 49

51 Cash flows from financing activities Cash flow from financing activity covers cash flows from raising and repayment of non-current liabilities and cash flow to and from the owners Cash and cash equivalents Cash and cash equivalents consist of the items "cash and cash equivalents" and short-term bank debt. The cash flow statement can not be derived directly from the income statement and balance sheet. Financial highlights and key ratios The key figures quoted in the statement of main and key numbers are calculated as follows: Profit ratio = Rate of return = Solvency ratio = Return on equity = Operating profit x 100 Total income Operating profit x 100 Average assets Total equity x 100 Total equity and liabilities Profit after tax x 100 Average equity 50

52 13 Management endorsement The Board of Directors and the Executive Board have discussed and adopted the annual report for the financial year 1 January to 31 December 2013 for CPH City & Port Development covering the management s report, the profit and loss account, the balance sheet, the cash flow statement, the equity capital statement, notes and accounting practice adopted The annual report has been drawn up in accordance with the Danish Financial Statements Act, accounting class A. CPH City & Port Development has also chosen to adopt recognition and measurement criteria and notes, etc. in accordance with the provisions for accounting class D enterprises for unlisted State corporations. This is done to achieve greater transparency and information value than under the requirements for accounting class A enterprises. It is our opinion that the chosen accounting practice is appropriate, that the company s internal controls relevant for drawing up and submitting annual reports are adequate, and that the annual report therefore provides a fair picture of the company s assets, liabilities and financial position as of 31 December 2013 and of the result of the company s activities and cash flow for the financial year 1 January to 31 December It is also our opinion that the management s report contains a fair account of the aspects with which the report deals. The annual report is presented for the partnership s approval on 15 April The Board of Directors recommends that a dividend not be paid. Copenhagen, 31 March 2014 Board of Management 51

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54 14. The independent auditor's statements To the stakeholders in CPH City & Port Development Endorsement of the annualaccounts We have audited the annual accounts for CPH City & Port Development for the period 1 January 31 December 2013, covering accounting practice adopted, the income statement, the balance sheet, the equity capital statement, the cash flow statement and notes. The annual accounts are drawn up in accordance with the provisions of the Annual Accounting Act for class A enterprises. Management's responsibility for the financial statements The management is responsible for producing and presenting an annual report that gives a true and fair view in accordance with the Danish Financial Statements Act. The management is also responsible for internal control that the management deems necessary to draw up annual accounts without material misstatement, irrespective of whether this is due to fraud or error, and the choice and use of appropriate accounting practice and the exercise of accounting estimates that are reasonable in the circumstances. In addition to this, it is also the responsibility of the management to ensure that the administration of funds covered by the annual report is in accordance with legislation and other provisions as well as contracts entered into and customary practice. Auditor's responsibility Our responsibility is to express an opinion on the financial statements on the basis of our audit. We have conducted the audit in accordance with international standards on auditing and additional requirements according to Danish audit legislation and good public auditing practice, cf. the Act on the auditing of State accounts, etc. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The audit procedures selected depend on the auditor's assessment, including the assessment of the risk of material misstatement in the annual report, irrespective of whether such misstatement is a result of fraud or errors. For the purpose of risk assessments, the auditor considers internal control relevant to CPH City & Port Development's preparation of accounts which give a true picture. The aim is to design audit procedures that are appropriate in the circumstances, but not to express an opinion on the effectiveness of CPH City & Port Development's internal control. An audit also includes assessing whether the management's choice of accounting policies is appropriate, whether the management's accounting estimates are reasonable and the overall presentation of the financial statements. The audit also involves an assessment of whether the corporation has laid down business procedures and internal controls that ensure that the administration of funds covered by the annual report is in accordance with legislation and other provisions as well as contracts entered into and customary practice. It is our opinion that the audit evidence obtained is sufficient and is suitable for the basis of our conclusion. Our audit has not given rise to any qualifications. Conclusion It is our opinion that the annual report gives a true and fair view of CPH City & Port Development s assets, equity and liabilities and financial position on the 31st of December 2013 and of the result of CPH City & Port Development s activities and cash flows for the accounting year 1st of January to the 31st of December 2013 in accordance with the Presentation of Accounts Act. It is also our opinion that the corporation has laid down business procedures and internal controls that ensure that the administration of funds covered by the annual report is in accordance with legislation and other provisions as well as contracts entered into and customary practice. Additional information regarding issues in the accounts 52

55 Without modifying our conclusion, we draw attention to Note 12 of the accounts, in which the management describes the significant uncertainty associated with the valuation of the company's investment properties. Statement regarding the management report We have reviewed the management report in accordance with the Financial Statements Act. We have not taken any measures in addition to the implemented audit of the financial statements. On this basis, it is our view that the information in the management report are in accordance with the annual accounts. Copenhagen, 31 March

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57 CPH City & Port Development, Nordre Toldbod 7 Postbox Copenhagen K CVR number: Tel Fax: info@byoghavn.dk