Annual Report 2007 - hci hammonia shipping ag

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The Company Management Report Financial Statements NotesRevenues from the chartering of three ships for approximately one month amounted to EUR 1,592 thousandduring the reporting period. Of the other operating income, EUR 197 thousand related to the Group’songoing business. The income contrasted with ship operating costs totalling EUR 729 thousand and otheroperating expenses of EUR 919 thousand (previous year: EUR 6 thousand), primarily comprised servicefees, auditing costs and the costs of preparing the financial statements. Including its low personnel costs,the Group recorded net income of EUR 9,412 thousand from shipping operations.Other operating income includes income from the negative goodwill arising on the initial consolidation offive single-ship limited partnerships in the amount of EUR 9,271 thousand. In contrast, the initial consolidationof the remaining three single-ship limited partnerships resulted in impairment losses of goodwill of EUR4,879 thousand, with the result that the 2007 Group earnings were positively influenced by the effects ofinitial consolidation of the subsidiaries, to the tune of EUR 4,392 thousand in total.Reduced to take account of depreciation of EUR 444 thousand, this gives a figure for earnings beforeinterest and taxes (EBIT) of EUR 4,088 thousand.Net interest income was positive due to the financing of ships from the Group’s equity and due to the goodcapital raising result. Interest expenses amounted to EUR 56 thousand, compared with interest income ofEUR 474 thousand.This resulted in earnings before taxes of EUR 4,507 thousand. After the deduction of income taxes, consolidatednet income for the year was EUR 4,485 thousand.Overall, the assets, liabilities, financial position and profit or loss of the Group can be viewed as favourable.5. Non-financial performance indicatorsTechnical operation of the ships ran smoothly following the acquisition of the vessels by the subsidiaries,and there were no off-hire periods. No significant problems occurred with regard to the completion ofthe remaining ordered new vessels, with the result that the commissioning of the five ships can beexpected on schedule.6. Report on material events after the reporting dateA preliminary agreement was concluded with A.P. Moeller Maersk AS (“Maersk”), Copenhagen, withregard to the acquisition of three 7,400 TEU full container ships. The preliminary agreement becamelegally effective following approval by the Maersk Board. Maersk will operate these ships for a minimumperiod of ten years on a time charter basis. The agreed time charter rate has been fixed for the period,so that respective income from the ships will not be subject to fluctuations. There is a bank financingcommitment in place for borrowed capital to fully finance acquisition of the three ships. The ships areexpected to be acquired in May 2008. On the basis of the agreement entered into with Maersk, theManagement Board expects a positive contribution to be made to the result in 2008 and, over the periodduring which the three ships are chartered, an amount that is at least at the level of the expected rateof return on equity of 6.5%.20
Management Report7. Risk reportThe Group has a well developed, IT-supported risk management system in place. Systematic risk identificationand assessment, as well as measures to avoid, reduce or limit risks, are all integral to this system.Particular focus is placed on the early detection of risks that could jeopardise the Group’s position. Essentialrisks from the Group arise from shipping, financing activity, and also from the Group’s legal form and itslisting on the stock market.The task of managing the risks associated with shipping and financing is the responsibility of HAMMONIAReederei GmbH & Co. KG, which operates all of HCI HAMMONIA SHIPPING AG’s ships. Alongside theManagement Board, HCI Hanseatische Schiffsconsult GmbH holds particular responsibility for providingadvice on share and capital market-related issues.The following key main risk groups are covered by the risk management system:7.1 Market-related risksThe Group generates income from the operation of ships, leading to the following individual risks inparticular:7.1.1 The revenues from the chartering of ships are not enough to cover the operating costs, or tocover debt servicing payments, or to generate an appropriate rate of return on the capitalinvestedThe Group operates all of its purchased ships in the form of pools based on vessel size, therebyreducing the risk of ships not being deployed or being deployed at inadequate charter rates.7.1.2 The charter agents become insolventThe Group operates all of its purchased ships in the form of pools based on vessel size, thereby alsoreducing the individual counterparty risk associated with specific charter agents through the conclusionof agreements with numerous agents with high credit ratings.7.1.3 The ships sink or are badly damaged during operation, or cause third-party damageThis type of risk, typical in the operation of seagoing vessels, is covered by the operator throughan appropriate level of insurance cover.7.1.4 Exchange rate riskThe income from the operation of the ships is exclusively generated in USD, whilst some of theship operating costs and dividends due in the future will be denominated in EUR.The ships are financed on the basis of matched currencies as far as possible. The remainingexchange rate risk is hedged by the Group, to the extent that the corresponding payment transactionsare already fixed, in close liaison with the Supervisory Board.7.1.5 Interest rate riskThe Group is subject to interest rate risk, due to the fact that the ships are also due to be financedthrough borrowed capital.This risk is limited by entering into derivative interest rate hedging transactions.21
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