Annual Report 2014
HMN Gassalg A/S, CVR no.: 26918480
HMN Gashandel A/S, CVR no.: 27061885
Annual Report for HMN Gassalg A/S
Management's review of HMN Gassalg A/S .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .3 Key Figures and Financial Ratios .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..13 Statement by the Board of Directors and Executive Board .. .. .. .. .. .. .. .. .. ..14 Independent Auditor's Report .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..15 Statement of Comprehensive Income of HMN Gassalg A/S . .. .. .. .. .. .. .. .. ..16 Balance Sheet of HMN Gassalg A/S .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..17 Statement of Changes in Equity of HMN Gassalg A/S.. .. .. .. .. .. .. .. .. .. .. .. ..18 Cash Flow Statement of HMN Gassalg A/S .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..19 Notes .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..20
Annual Report for HMN Gashandel A/S
Management's review of HMN Gashandel A/S . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..33 Key Figures and Financial Ratios .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..39 Statement by the Board of Directors and Executive Board .. .. .. .. .. .. .. .. .. ..40 Independent Auditor's Report .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..41 Statement of Comprehensive Income of HMN Gashandel A/S .. .. .. .. .. .. .. ..42 Balance Sheet of HMN Gashandel A/S .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..43 Statement of Changes in Equity of HMN Gashandel A/S .. .. .. .. .. .. .. .. .. .. ..44 Cash Flow Statement of HMN Gashandel A/S .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..45 Notes .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..46
Management's Review of HMN Gassalg A/S
Focus on customers
As the "customers' gas company", HMN Gassalg A/S aims to ensure that natural gas consumers always have a competitive alternative to other natural gas suppliers. It is thus the company's objective to ensure that minimum 90% of customers in HMN Naturgas I/S' supply area choose HMN Gassalg A/S (or HMN Gashandel A/S) as their supplier of natural gas in the future as well.
At the end of 2014, HMN Gassalg A/S supplied natural gas to approx. 90% of the natural gas customers in HMN Naturgas I/S' supply area, while HMN Gashandel A/S supplied natural gas to another just under 5%.
HMN Gassalg A/S is aware that to a significant number of private customers, natural gas is an area of low priority. Customers expect the natural gas supply to work and that they do not otherwise have to concern themselves with it. Therefore, our focus is to:
• ensure a competitive price
• ensure the development of a product range relevant to customers
• ensure that customers are satisfied with our services.
HMN Gassalg A/S is the largest gas company on the Danish market with the lowest operating expenses. So we believe that with the current gas purchase agreements and current activities on the gas market, HMN Gassalg A/S will also be able to offer our customers natural gas on attractive terms in the coming years.
Termination of PSO licence
Until 1 May 2013, HMN Gassalg A/S held a PSO licence granted by the Danish Ministry of Climate, Energy and Building under the Danish Natural Gas Supply Act (lov om naturgasforsyning), Consolidated Act No 1331 of 25 November 2013). The PSO licence entails an obligation for the company to supply natural gas, against payment, to consumers who do not utilise the opportunity to choo-se an alternative supplier.
The PSO licence is granted to the company offering to supply natu-ral gas to consumers during the licence period at the lowest price in accordance with a number of fixed requirements. Tenders for the PSO licence were invited in the spring of 2013. In that connection, the licence was transferred to Naturgas Fyn A/S (now NGF Nature Energy A/S), which won the licence with an extremely low bid.
HMN Gassalg A/S then came to the conclusion that retaining rather than capturing customers was much cheaper. The company therefo-re elected to actively therefo-retain customers by offering all its customers terms that are expected to be fully competitive with the very low PSO prices.
According to a report issued by the Danish Energy Regulatory Authority in December 2014 HMN Gassalg A/S' prices have proved to be competitive on the market.
Prices and products
It has been the HMN Gassalg group's strategy to give priority to supply security to ensure sufficient gas supply to customers. Hence, in 2012 and earlier, the company chose to enter into long-term purchase contracts, paying a premium to ensure flexible gas supply. While the decisions on long-term purchase contracts combined with low sales prices for all the company's customers have been expensi-ve for HMN Gassalg A/S, they haexpensi-ve also helped HMN Gassalg A/S retain its good market position. At the end of 2014, all expensive gas purchase agreements had been terminated, and the company expects to see improved financial results.
Due to the price policy pursued, the loss of customers in connection with the loss of the PSO licence has been very limited. Under the PSO regulation, customers who change address without choosing a gas supplier at the new address are automatically transferred to the PSO company covering the area. However, HMN Gassalg A/S has managed to retain gas supply contracts for just over half of all cust-omers who have changed address during the period under review. Moreover, HMN Gassalg A/S has regularly conducted win-back campaigns for lost customers with good results as well as campaigns to convert to natural gas targeting owners of oil-heated homes and has provided information about the competitiveness of natural gas to potential district heating customers.
At the same time, HMN Gashandel A/S' has successfully and acti-vely engaged in the more intensified competitive market for large customers. HMN Gashandel A/S has thus managed to increase total sales from approx. 200 million m3 at the establishment of the
company at end-2002 to the current approx. 800 million m3 a year.
Competition on the market
The principal aim for HMN Gassalg A/S in 2014 was to continue its activities in terms of high-quality customer service and the focus on customer retention and sales to new customers.
2014 was the twelfth year after the full liberalisation of the market, allowing all customers to freely choose their supplier. 2014 was another year in which competition focused on the market for large and medium-sized customers, while activity in the market for pri-vate customers was limited. The PSO tender at end-2013 brought down the price so low that there is nothing to compete for really. Accordingly, the low prices resulted in a relatively modest number of supplier changes. This has occasionally been interpreted as if market competition is not working. HMN Gassalg A/S is of the opinion that the impact from competition should be estimated using the prices offered to customers rather than the number of supplier changes.
HMN Gassalg A/S' focus continues to be on limiting costs and on ensuring that the freedom of choice of supplier can be exercised in the simplest and smoothest manner possible without causing any inconvenience for customers choosing to remain customers with HMN Gassalg A/S. The procedures established for supplier changes in Denmark are efficient without interfering with the customers' free choice of supplier.
Competitiveness of natural gas
Today, natural gas is up to 40% cheaper than oil, and the focus is increasingly on the gas price in relation to the price of district heating.
HMN Gassalg A/S has managed to continue offering its natural gas customers a price that is clearly competitive compared with the price of heating from the average district heating plant – despite the fact that many district heating plants use fuels that are exempt from energy tax, while energy tax for natural gas customers acco-unts for almost half of the total heating bill.
The repeated reductions of distribution rates from HMN Naturgas I/S in step with the debt repayment are also very important to the competitiveness of natural gas. The market losses of natural gas in HMN Naturgas I/S' supply area are thus significantly smaller than in the rest of Denmark.
Danish gas prices
track other European gas prices
Pricing on the Danish gas market is linked almost completely to gas exchange prices and the price structure has become very flat. Accordingly, there is only little difference in the price charged to
single-family homeowners, large industrial customers and CHP plants.
Traditionally, the Danish gas exchange has mirrored the German and Dutch gas exchanges except in case of special supply problems on the Danish market. The risk was reduced significantly from 1 October 2013 when supply availability in Denmark improved, as Energinet.dk commissioned compressors at Egtved, Denmark, and doubled transmission pipeline capacity from the German border to Egtved. 2014 also saw capacity expansion in the export pipeline between Germany and Denmark.
Gas purchase agreements
2014 was the HMN Gassalg group's eighth year on the international gas market, independently purchasing natural gas to the company's customers. Until 2007, the company was obliged to purchase all of its gas from DONG Energy.
In the HMN Gassalg group, HMN Gashandel A/S is responsible for all purchases, storage and transport of natural gas and biogas to cover the supply of natural gas to both HMN Gassalg A/S' and HMN Gashandel A/S' natural gas customers. Moreover, HMN Gashandel A/S has acquired gas storage capacity with Energinet.dk to meet the group's need for flexibility. HMN Gashandel A/S also manages the purchase portfolio and the daily balancing in relation to suppliers, storages and Energinet.dk.
HMN Gashandel A/S still holds the purchase agreement for the state-owned Nordsøfond's share of North Sea natural gas that was not already contracted to another party. The natural gas is supplied to HMN Gashandel A/S at the Tyra Field in the North Sea and is transported onshore via DONG Energy's marine pipe-line. HMN Gashandel A/S is responsible for the balancing of the North Sea pipeline and re-exports the natural gas supplied from Nordsøfonden not used in Denmark.
Despite its losses in recent years, the group has generated good earnings for a number of years and has significantly consolidated its position. This consolidation has given the company more room for manoeuvre on the gas market and, accordingly, a better possibility of concluding attractive gas contracts in a market that is increasing-ly focusing on the creditworthiness of its partners after the onset of the financial crisis.
For the HMN Gassalg group, sales to small customers in 2014 were strongly affected by the price reduction following the loss of the PSO licence. Combined with sharply falling sales margins and old
"expensive" gas purchase contracts, the result left something to be desired. The old "expensive" gas purchase contracts expired in 2014, so significantly improved results in HMN Gassalg A/S are expected for 2015.
Under HMN Gassalg A/S' risk policy, the company must effectively hedge all risk of fluctuations in energy prices and exchange rates. HMN Gassalg A/S' activities in connection with the purchase and sale of natural gas are therefore regularly hedged on the financial markets. In the Financial Statements, such hedging is determined according to the International Financial Reporting Standards, IFRS, at the market price on the balance sheet date.
There is an asymmetry in the rules on determining such hedging, as only financial hedging is determined at market value, while the corresponding changes in the value of customer agreements are not fair value-adjusted in the Financial Statements. Instead, the effect of this is recognised in the year in which the gas supply is actually made. This means that even if the company has linked a particular contribution margin to a gas purchase or gas sale, respectively, this will not be reflected in the Financial Statements, as only one leg of the agreement is determined at market value.
In 2014, this market value adjustment affected the profit/loss for the year by a negative DKK 59.1 million. In the course of 2015, the profit/loss will be affected positively by approx. DKK 40 million in step with delivery, while 2016 and 2017 will be affected positively by approx. DKK 19 million as a result of the agreements concluded as at 31 December 2014.
The 2014 calendar year was considerably warmer than a normal year, resulting in slightly lower sales to customers across the group than budgeted for a normal year. Conversely, the group's overall customer base was somewhat larger than budgeted.
HMN Gassalg A/S is confident that, in recent years, the company has achieved a strong position on the gas market for the coming years.
Natural gas as a green energy source
Denmark has an ambitious climate and energy policy comprising distinctive objectives on the transition to a society free from fossil fuels towards 2035 and 2050.
According to the Danish Parliament's energy agreement of 2012, Denmark is to be made independent of fossil fuels in favour of renewable energy, primarily wind power and solar power, but also biomass and biogas.
Hence, the energy sector of the future will become increasingly dependent on fluctuating energy sources that will increase the need for flexibility to enable the overall energy system to produce and release energy on grey and windless days.
HMN Gassalg A/S is optimistic about the role of natural gas in the energy system of the future. Natural gas is particularly suited for balancing the substantial volume of volatile wind energy that is already comprised by the energy system, and which will grow in the coming years. At the same time, natural gas is the lowest CO2
emitting fossil fuel and should consequently, from a climate and environmental point of view, be the last fossil fuel in the energy supply to be phased out.
In addition, large volumes of natural gas are deemed to be avai-lable. The International Energy Agency (IEA) estimates 250 years' consumption, 70% of which is found within a distance of 2,000 kilometres from Europe.
Natural gas can be stored and is therefore ideal for filling gaps in wind energy production and, also, the natural gas grid can be used to effectively utilise the possibilities of producing biogas and hydrogen/methane on the basis of surplus power from wind energy. Moreover, natural gas is cheap. Today, market prices of natural gas are very far from the cost of producing electricity via wind energy, and competitiveness and welfare considerations may gain increa-sing importance in the coming years – for the benefit of the role of natural gas in the energy supply of the future.
Production and distribution of biogas are high on the political agenda. HMN Gassalg A/S believes that it is very important to assist in ensuring that the quite substantial biogas resources are produced and utilised rather than other forms of energy. This will produce less CO2 and methane emissions for the benefit of all of us.
The HMN Gassalg group has decided to get involved in the biogas market. The company focuses on upgrading only, not on biogas production.
HMN Gashandel is currently involved in more than ten projects, and a further five systems are expected to be commissioned during 2015.
HMN Gassalg A/S' commitment to the upgrading of biogas requires a positive credit rating of the producer, active financial participa-tion by the project owner, a positive assessment of the producer's access to the necessary commodities and separation of the
upgra-ding system with direct ownership of the system or against the system as collateral.
The progress of the biogas projects has been slower than expected. Approval of the subsidy scheme from the EU was not secured until late 2013, and equally importantly, the projects were delayed by the lengthy process for local environmental approvals and problems with the financing of the systems. Nor did the current agricultural crisis in connection with the relationship with Russia speed up financing.
The future of biogas now depends on whether production and upgrading costs can be reduced.
Demonstration project for
the upgrading of biogas (ENZUP)
HMN Gashandel A/S is managing a three-year full-scale demon-stration project aiming to demonstrate a cheaper method to upgrade biogas to natural gas quality. Using enzyme technology in the upgrading process will reduce energy consumption – and thus costs – by approx. 25% compared with methods using the techno-logies available on the market today.
The project is supported by EUDP (Energy Technology Development and Demonstration) and the budget amounts to approx. DKK 42 million, of which EUDP is paying approx. DKK 21 million.
The project is implemented in cooperation with five partners: BIOFOS A/S, which operates three wastewater treatment plants in the Greater Copenhagen Area, Akermin, Inc., the US firm that has designed the upgrading plant, and Ammongas A/S, which will build the plant, while Novozymes will supply the enzymes and DGC (Danish Gas Technology Centre) will be in charge of the measuring programme.
The demonstration plant is established at Avedøre Wastewater Services, which will supply its entire biogas production to the plant during the period, rather than producing electricity and heat in a biogas engine. The plant is expected to be put into operation in 2015.
"Power to gas"
HMN Gashandel A/S is also participating in another demonstra-tion project at Avedøre Wastewater Services: "Power to gas" (P2G Biocat).
The purpose of this project is to produce hydrogen generated by electrolysis with cheap power from wind turbines. CO2 is then
converted into methane using a new biological methanisation technology based on microorganisms. The CO2 used in this process
comes from the ENZUP upgrading plant where it is a waste product.
The methane can subsequently be upgraded to gas of natural gas quality.
Natural gas for transport
It is the government's objective that, in the long term, heavy trans-port should convert from fossil fuels to renewable energy sources, including biogas.
If the conversion to gas is to be realised in the transport sector, it will be necessary to establish a gas filling infrastructure for both road and shipping transport.
HMN Gashandel A/S is actively working to establish the necessary gas filling stations. In April 2013, HMN Gashandel A/S opened its first public-access natural gas filling station for transport in Skive, and it has subsequently opened gas filling stations in Frederikshavn, Ålborg, Holstebro, Tarm, Frederikssund, Gladsaxe and Copenhagen Airport. Other gas companies have also established gas filling sta-tions in Denmark.
New projects continue to crop up, but it is HMN Gassalg A/S' stra-tegy that a certain basis for the operation must be in place before a filling station can be established. This basis should be equivalent to one or more fleet owners who can provide the base load for the station while ensuring public access to the station for other custo-mers with a view to developing a market for gas vehicles in the area.
LNG for the shipping trade
In the longer term, LNG (liquefied natural gas) is expected to play a major role for the shipping trade in the energy supply of the future. LNG is considerably cleaner than the heavy fuel oil that is tra-ditionally used in the shipping trade today, and due to stricter environmental requirements in 2015 and 2016, LNG may become more important for the shipping trade in future. This means a gre-ater need for the establishment of filling stations in ports to allow vessels to bunker gas.
HMN Gassalg A/S has no intention of becoming a distributor of imported LNG, but the company sees the potential of being able to produce LNG locally at "micro-LNG plants" in future, thereby utilising the existing natural gas grid to transport natural gas more cheaply than by alternative forms of transport.
HMN Gassalg A/S also sees local LNG production as a means to remedy biogas "overflow" in the summer period and, in the long term, as a method to remedy "surplus power" in the electricity system.
New gas applications
As regards technological innovation, HMN Gassalg believes that gas-fired heat pumps and micro-CHP plants producing heat and power in individual homes are the most promising.
HMN Gassalg A/S has been involved in two projects to establish large gas-fired heat pump systems. DGC (Danish Gas Technology Centre) has regularly monitored the performance of these systems. The future potential of the systems is very encouraging.
Energy savings advice
As a result of the political objective for Denmark to reduce its ultimate energy consumption by almost 7% in 2020 compared with 2010, the energy companies must endeavour to an even higher degree to realise specific energy savings in the coming years. One way to achieve this is to provide advice and grants to households and the corporate sector, among others.
The HMN Gassalg group's parent company HMN Naturgas I/S aims to ensure that the new energy-saving contributions charged over the distribution tax are refunded to small consumers who make an extra effort to save energy.
HMN Gassalg A/S has been in charge of the effort directed at small customers. In the customer magazine MaGASinet and through exhibitions and events for installation firms, HMN Gassalg A/S has assisted customers with advice on the choice of energy-efficient solutions – including information on the energy utilisation of up-to-date natural gas boilers that is the best among all forms of energy. Energy savings have been promoted and information on the pos-sibility of obtaining subsidies has been provided via two special energy-saving campaigns and in the company's customer magazine. This effort was accomplished in close cooperation with the instal-lation trade.
HMN Gassalg A/S has lent thermographic cameras to customers to enable them to identify areas of concern in the building envelope of their home. In this way, customers have been able to focus their efforts on the areas that ensure the greatest savings. HMN Gassalg A/S has provided guidelines to customers on how to interpret the thermographic images at HMN Gassalg A/S' exhibition in Søborg. In 2015, the application of those guidelines will be extended to central and northern Jutland, as HMN Gassalg A/S has concluded a number of agreements with gas fitters with stationary exhibitions distributed across the entire supply area.
HMN Gassalg A/S has managed to overachieve the targets that the company has agreed with its parent company HMN Naturgas I/S
to realise in the energy savings area. At the same time, the budget framework for the work was kept.
At the end of 2014, the HMN Gassalg group had just over 233,000 customers, including approx. 15,000 domestic customers who use natural gas only for cooking purposes. Customers are distributed by approx. 171,800 in the Greater Copenhagen area and approx. 58,200 in central and northern Jutland, while approx. 3,000 cust-omers in other distribution areas have chosen the HMN Gassalg group as their supplier. In comparison, the total number of custo-mers was 236,400 at the end of 2013.
In 2014, approx. 2,200 new contracts were concluded, while approx. 3,000 small customers chose a supplier other than the HMN Gassalg group. Thus, the loss of small customers to competitors exceeded that of previous years due to the loss of the PSO licence; moreover, competition on the market for medium-sized customers remains intense.
The Danish gas market has about ten competitors. Overall, compe-tition has led to lower prices for small and medium-sized customers, and a more natural relationship than previously seems to have been established between prices for small and large customers.
HMN Gassalg A/S is not engaged in any sales activities for the distribution companies. To the extent that HMN Gassalg A/S launches sales campaigns targeted at potential customers, this will be for the company's own account and risk. In 2014, HMN Gassalg A/S chose to continue its marketing activities as regards sales to new customers by way of a spring and autumn campaign targeting oil-heated and electrically heated homes in areas with existing networks.
In our opinion, customer awareness of the possibility of choosing natural gas is high. Customers often continue to choose natural gas as their source of energy when they are in a replacement situation. A total of 104 customers with electrical heating chose to switch to natural gas in 2014 compared with 143 customers in 2013.
An increasing number of district heating projects are carried out in natural gas areas. Again in 2014, the company lost a number of medium-sized customers to district heating projects, a trend that is expected to increase over the coming years.
The cooperation with the installation trade has been expanded under the "GasFitter Concept", where the cooperation with natural
gas-active installation firms is intensified. The GasFitter coopera-tion includes 99 installacoopera-tion firms in supply area east and 89 firms in supply area west.
HMN Gassalg A/S' basic risk policy entails that
• HMN Gassalg A/S seeks to hedge against risk in terms of fluctuating prices and volumes to the extent possible, • HMN Gassalg A/S does not actively take
posi-tions in the market with a view to achieving gains based on expected market developments.
This means that natural gas is purchased at prices that vary accor-ding to the exchanges in Denmark, Germany or the Netherlands, and that it is resold at prices that are adjusted according to similar adjustments.
To the extent that natural gas is purchased or sold according to other adjustments such as fixed prices or oil adjustment, an offset-ting hedging transaction is entered into in the form of either a swap or a physical transaction that neutralises the position, i.e. eliminates the risk posed by the original contract. HMN Gassalg A/S' portfolio is hedged daily.
To the extent that gas is purchased for storage, this is hedged until such time when the gas is expected to be utilised. Hedging is adjusted daily.
A considerable number of the hedging transactions are concluded on the Dutch market where liquidity is better than on the German or Danish market.
As mentioned in connection with the review of the company's results, the hedging of risk has some inexpedient impacts on profit/ loss for the year due to the disparity resulting from different state-ment methods in accordance with International Financial Reporting Standards (IFRS) in terms of physical and financial products.
In 2014, the HMN Gassalg group recorded a loss before tax of DKK 106.3 million compared with a loss of DKK 25.8 million in 2013. This was significantly higher than expected at the beginning of the year. Results were very much impacted by the market value adjustment of the financial agreements that are recognised in the Income Statement in the year when the agreements were conclu-ded, whereas the value of physical agreements is recognised in step with delivery. This adjustment contributed to the profit/loss for the year before tax by a negative DKK 59.1 million.
The profit/loss for the year was further affected by a negative DKK 22 million of old unprofitable purchase agreements, which all expi-red in 2014. Expenses for storage with Energinet.dk also affected the profit/loss for the year by a negative DKK 22 million. Finally, the fact that 2014 was a very warm year resulting in reduced sales had a negative impact on the results. Conversely, operating expen-ses were lower than in previous years.
Revenue in the HMN Gassalg group was DKK 4,497.9 million in 2014 (2013: DKK 5,105.4 million), and cost of sales was DKK 4,470.2 million (2013: DKK 5,036.3 million).
Revenue in the parent company HMN Gassalg A/S was DKK 753.0 million in 2014 (2013: DKK 1,124.4 million) and cost of sales was DKK 714.2 million (2013: DKK 1,084.7 million).
Gross profit from the sale of gas in the HMN Gassalg group was DKK 27.7 million in 2014 (2013: DKK 69.1 million).
Gross profit from the sale of gas in the parent company HMN Gassalg A/S was DKK 38.8 million in 2014 (2013: DKK 39.6 million).
In 2014, the weather was much milder than in a normal temperature year, and 2014 had 16% fewer degree days than in a normal year as defined by HMN Naturgas I/S. Total group sales were in line with the budget. Sales in the HMN Gassalg group were negatively affected by the warmer climate and positively by the increased market share. Due to the company's competitive prices, customer defection from the PSO company HMN Gassalg A/S was lower than expected.
In 2014, total group sales were 1,072 million m³, broken down by 457 million m³ in the Greater Copenhagen area, 427 million m³ in central and northern Jutland and 188 million m³ in other distribu-tion areas. In 2013, sales totalled 1,133 million m³.
In the parent company HMN Gassalg A/S, sales totalled 321 million m3 broken down by 247 million m3 in the Greater Copenhagen area
and 74 million m3 in central and northern Jutland. In 2013, sales
totalled 383 million m³.
relating to financial hedging
The HMN Gashandel group enters into financial agreements on hedging of purchase and sales contracts and financial hedging con-tracts in the financial markets. A market value of the agreements concluded in the financial year or earlier financial years (and still in force) is calculated at the end of the financial year. The change in the market value of the portfolio relative to the market value at the beginning of the financial year is included in the Income Statement. In the Financial Statements 2014, the market value adjustment was a negative DKK 59.1 million (2013: a negative 12.6 million). At the end of 2014, the net value of purchase and sales contracts and financial hedging contracts was a negative DKK 62.0 million (2013: a negative DKK 2.8 million), recognised at DKK 24.3 million under Other receivables and DKK 86.3 million under Other payab-les.
In the hedging period, the net value will be offset by correspon-dingly higher earnings on these purchase and sales contracts and other financial hedging contracts.
HMN Gassalg A/S has no employees other than the members of the Executive Board. All other employees are employed with the parent company HMN Naturgas I/S. The company's operations are run by purchasing resources or services from HMN Naturgas I/S or by use of external partners.
A number of service agreements have been established which specify the quality, competence and payment of the purchase of resources and services between the companies in the group to ensure that the agreements are on market terms. The service agre-ements mainly concern the purchase of resources by way of staff and specific services.
In 2014, the HMN Gassalg group's net operating expenses totalled DKK 70.8 million compared with DKK 81.9 million in 2013.
In 2014, the group realised net interest income of DKK 0.6 million. In 2013, interest income totalled DKK 0.5 million. Interest income from liquidity investments exceeded the group's expenses for
rantee commission in connection with the purchase of natural gas and interest expenses on subordinated loan capital.
In 2014, bank credit was used for the first time in the history of the company, the reason being that it has been an advantage to establish larger gas storage capacity than previously. At the same time, the company no longer purchases natural gas on longer-term cooperation agreements that incorporate credit, but has switched to purchasing more gas at the exchanges. The credit time for large customers has also been extended, and the company has spent a large amount of its funds on investments in biogas upgrading and CNG filling stations.
In future, the company will also require bank credits during the winter period.
The estimated tax of the HMN Gassalg group for 2014 is a positive amount, DKK 22.0 million, due to tax losses which will be carried forward to future years.
The HMN Gassalg group recorded a loss for the year after tax of DKK 84.3 million against a loss of DKK 19.4 million in 2013.
The HMN Gassalg group's gross results are obtained through a small trade margin by way of a minor amount per m3 sold as well as
the net effect of financial hedging of the company's contracts with customers and of the company's purchase of natural gas.
In a warm year, the group's gross profit will be lower due to reduced sales.
This risk has been mitigated by purchasing the natural gas volumes on flexible terms which can immediately be resold on the interna-tional market.
The future income base from customers depends on the HMN Gassalg group retaining its current customer base. To the extent that the customers choose other gas suppliers, the company's income base will be eroded. The company has allowed for possible market share losses in its plans for the future.
Transmission and storage
Up to 50% of HMN Gashandel A/S' transmission and storage costs are fixed payments. The company compensates for this by charging especially large customers a fixed as well as a variable contribution
for transmission and storage. However, the majority of costs are charged as a minor amount per m3 natural gas sold.
Gas purchases and take-or-pay terms
A significant portion of the company's gas purchase contracts in 2014 was concluded on take-or-pay terms, which means that HMN Gashandel A/S is obliged to pay for the gas, irrespective of whet-her the company takes the gas or not. Gas purchases are generally hedged, using financial agreements, at the exchange price on the delivery date.
To the extent that HMN Gashandel A/S' purchase volumes exceed current sales to customers, excess volumes can be resold on the international market at the same prices less any transport costs.
Transport of natural gas
A substantial portion of the company's natural gas is bought abroad and must be transported to Denmark. This involves a risk of transport interruptions and, consequently, an imbalance in the Danish gas grid in relation to Energinet.dk and in relation to the gas grid abroad, which may entail losses due to compulsory sale and purchase.
The gas volumes purchased that do not directly correspond to con-cluded sales agreements or that are not related to the development in the gas exchange price, are hedged in the physical or financial gas market. As a result, gas volumes already purchased are always in accordance with the market price of natural gas.
Focus on credit
Trading in international gas markets and hedging of market-related risks with financial products increasingly require guarantees. The company may to a certain extent be prevented from entering into the best contracts on the best terms due to lack of credit approval from potential counterparties.
By strengthening the company's equity, establishing bank credit lines and, on an ongoing basis, entering into trade relations with accompanying credit approval and guarantees, the company will enhance its room for manoeuvre on the market and its possibility of hedging risks.
A number of deviations in Danish insolvency legislation from European standards increase the company's credit requirements in relation to foreign counterparties.
Ordering and nominations
If the company's ordering and nominations of natural gas for the 24 hours concerned have been outside the margins laid down in the rules governing the use of the transmission system, this has had financial implications.
As from 1 October 2014, nominations have become more complex, as intake and outtake must balance completely on a daily basis. This entails a marked extension of intraday trading activity.
The company has built up considerable knowledge of control in this area. However, the control has been complicated by an increasing portion of sales no longer being dependent on the weather, but on electricity prices, and by the fact that natural gas is increasingly included as peak load in the heat supply.
In the past few years, the HMN Gassalg group has increased the company's share of corporate businesses. This entails an increasing risk of bad debts. However, the HMN Gassalg group has reduced its bad debts significantly in 2014.
The customer's financial position is assessed on the conclusion of the contract. Furthermore, the risk of loss on bad debts is addres-sed by setting a credit time and by effectively following up on receivables due.
HMN Gassalg A/S is a company in the HMN Naturgas group, and the group's risk management and internal controls form part of the Consolidated Annual Report. Similarly, the group's social responsi-bility appears from the Consolidated Annual Report.
Natural gas is a low priority area with small natural gas customers. As long as the price of natural gas is competitive, HMN Gassalg A/S expects that the company will be able to retain its market position on this market.
Again in 2014, the subsidiary HMN Gashandel A/S proved to be an attractive partner for medium-sized and large enterprises. Thus, a significant portion of sales for 2015 has already been secured. The company is expected to retain its market position in the com-ing years and to achieve satisfactory results. Profit from ordinary activities in the group of around DKK 40 million and realisation of hedging contracts with financial counterparties of approx. DKK 40 million are expected in 2015.
At the end of 2014, the group had no more old loss-making gas purchase contracts. The group's commitment to the Danish Energy Agency with respect to offering all customers low consumer prices will expire on 1 May 2016 at the same time as the expiry of the PSO price.
The group companies expect to be able to retain their position as the most cost-efficient gas companies when it comes to customer service, while at the same time maintaining the customer service level.
Events occurring after the end of the
No events of material importance to the evaluation of the Annual Report have occurred after the end of the financial year.
Key Figures and Financial Ratios for the HMN Gassalg Group
FinanceDKK million 2014 2013 2012 2011 2010
Revenue 4,497.9 5,105.4 4,908.1 4,612.6 4,022.9
Gross profit/loss 27.7 69.1 77.2 107.4 214.2
Other operating income 3.3 8.7 3.7 4.9 11.9
Operating income/expenses relating to financial hedging -59.1 -12.6 -8.7 -35.5 96.5
External costs -74.1 -90.6 -84.1 -80.4 -75.9
Depreciation and amortisation -4.6 -1.0 -0.4 -0.4 -0.3
Net financials 0.6 0.5 -0.8 1.1 0.3
Profit/loss for the year before tax -106.3 -25.8 -13.1 -2.9 246.8
Investments in property, plant and equipment 70.3 7.4 0.4 0.4 0.1
Trade receivables 629.8 716.3 655.7 571.8 591.9
Equity 607.4 691.6 711.0 721.3 720.7
Balance sheet total 1,362.1 1,280.5 1,422.4 1,578.3 1,592.6
Ratios in per cent2014 2013 2012 2011 2010
Gross margin 0.6 1.4 1.6 2.3 5.3
Profit ratio -2.4 -0.5 -0.3 -0.1 6.1
Rate of return -7.8 -2.1 -0.9 -0.3 15.5
Return on equity -13.0 -2.8 -1.4 0.1 28.9
Equity ratio (solvency) 44.6 54.0 50.0 45.7 45.3
Statistics2014 2013 2012 2011 2010
Sales (million m3 of natural gas) 1,072 1,133 1,100 1,062 1,248
Total customers (number) 233,048 236,430 242,044 243,575 242,156
– of which domestic customers (number) 14,700 15,337 16,002 16,561 16,102 – of which heating and process customers (number) 218,348 221,093 226,042 227,014 226,054
The Board of Directors and the Executive Board have today reviewed and approved the Annual Report of HMN Gassalg A/S for the financial year 1 January to 31 December 2014.
The Consolidated Financial Statements and the Parent Company Financial Statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU. Furthermore, the Consolidated Financial Statements, the Financial Statements and the Management's Review are prepared in accordance with additional disclosure requirements of the Danish Financial Statements Act (årsregnskabsloven).
In our opinion, the Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of the group's and the company's assets, liabilities and equity and financial position at 31 December 2014 and of the results of the group's and the com-pany's operations and cash flows for 2014.
In our opinion, the Management's Review includes a fair review of developments in the group's and the company's operations and financial affairs, the profit or loss for the year and the group's and the company's financial position.
The Annual Report is submitted for adoption by the general meeting.
Hindsgavl Castle, 19 March 2015 Executive Board
Ole Albæk Pedersen Henrik Iversen Managing Director, CEO Chief Commercial Officer, CCO
Board of Directors
Torsten Nielsen Thomas Lykke Pedersen
Chairman Vice Chairman
Arne Bisgård Ib Bjerregaard Helge Friis
Jens Jørgen Nygaard Finn Stengel Petersen Ebbe Skovsgaard
We have audited the Consolidated Financial Statements and the Parent Company Financial Statements of HMN Gassalg A/S for the financial year 1 January to 31 December 2014, comprising Statement of Comprehensive Income, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement and notes, including acco-unting policies for the Group as well as for the Parent Company. The Consolidated Financial Statements and the Financial Statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional disclosure require-ments in the Danish Financial Staterequire-ments Act.
Management's responsibility for the Consolidated
Financial Statements and the Parent Company
Management is responsible for the preparation of Consolidated Financial Statements and Financial Statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional disclosure require-ments in the Danish Financial Staterequire-ments Act, and for such internal control as Management determines is necessary to enable the preparation of Consolidated Financial Statements and Financial Statements that are free from material misstatement, whether due to fraud or error.
Our responsibility is to express an opinion on the Consolidated Financial Statements and the Parent Company Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the Consolidated Financial Statements and Financial Statements are free from material mis-statement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Consolidated Financial Statements and Parent Company Financial Statements. The pro-cedures selected depend on the auditor's judgement, including
the assessment of the risks of material misstatement of the Consolidated Financial Statements and Parent Company Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation of Consolidated Financial Statements and Parent Company Financial Statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting poli-cies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the Consolidated Financial Statements and the Parent Company Financial Statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit.
The audit has not resulted in any qualification.
In our opinion, the Consolidated Financial Statements and the Parent Company Financial Statements give a true and fair view of the Group's and the Parent Company's assets, liabilities and equity and financial position at 31 December 2014 and of the results of the Group's and the Parent Company's operations and cash flows for the financial year 1 January to 31 December 2014 in accordance with International Financial Reporting Standards as adopted by the EU and additional disclosure requirements in the Danish Financial Statements Act.
Statement on the Management's Review
We have read the Management's Review in accordance with the Danish Financial Statements Act. We have not performed any furt-her procedures additional to the audit of the Consolidated Financial Statements and the Parent Company Financial Statements. On this basis, in our opinion, the information provided in Management's Review is consistent with the Consolidated Financial Statements and Financial Statements.
Independent Auditor's Report
To the shareholders of HMN Gassalg A/S
Report on the Consolidated Financial Statements and the Parent Company Financial Statements
Hellerup, 19 March 2015 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab
Per Timmermann Jesper Møller Christensen
Statement of Comprehensive Income
Statement of Comprehensive Income
Income StatementP A R E N T C O M P A N y G R O U P 2013 2014 DKK million Note 2014 2013 1,124.4 753.0 Revenue 4,497.9 5,105.4 -1,084.7 -714.2 Cost of sales -4,470.2 -5,036.3 39.6 38.8 Gross profit/loss 27.7 69.1
8.1 3.0 Other operating income 3.3 8.7
0.0 0.0 Operating income/expenses relating to financial hedging -59.1 -12.6
-54.9 -40.1 Operating expenses 2, 3 -74.1 -90.6
-0.1 -0.1 Depreciation and amortisation 6 -4.6 -1.0
-7.3 1.6 Operating profit/loss -106.8 -26.3
0.9 0.3 Financial income 4 2.5 2.0
0.0 -0.2 Financial expenses -1.9 -1.5
-6.4 1.8 Profit/loss before tax -106.3 -25.8
1.6 -0.8 Income tax 5 22.0 6.4
-4.8 0.9 Net profit/loss for the year -84.3 -19.4
P A R E N T C O M P A N y G R O U P
2013 2014 DKK million Note 2014 2013
-4.8 0.9 Net profit/loss for the year -84.3 -19.4
Balance Sheet for HMN Gassalg A/S
P A R E N T C O M P A N y G R O U P
2013 2014 DKK million Note 2014 2013
0.2 0.4 Fixtures and fittings, tools and equipment 6 71.7 7.2
125.9 125.9 Investments in subsidiary 7 0.0 0.0
0.0 0.0 Other investments 84.6 25.0
125.9 125.9 Total investments 84.6 25.0
126.1 126.2 Total non-current assets (other than deferred tax assets) 156.2 32.2
5.2 4.4 Deferred tax asset 32.1 10.1
131.4 130.6 Total non-current assets 188.3 42.3
0.0 0.0 Inventories 453.1 389.8
51.3 24.7 Receivables from customers 8 629.8 716.3
310.0 645.2 Receivable from HMN Gashandel A/S 0.0 0.0
0.3 1.4 Receivable from HMN Naturgas I/S 1.5 0.3
15.9 0.0 Receivable income tax 0.0 15.9
16.6 0.1 Other receivables 9 81.8 33.7
394.1 671.4 Total receivables 713.2 766.2
27.9 0.0 Cash 7.5 82.2
422.0 671.4 Total current assets 1,173.8 1,238.2
553.3 802.1 Total assets 1,362.1 1,280.5
Liabilities and equity
50.0 50.0 Share capital 50.0 50.0
340.2 341.1 Retained earnings 557.4 641.6
390.2 391.1 Equity 607.4 691.6
0.0 0.0 Deferred revenue 14.3 0.0
0.0 0.0 Total long-term debt 14.3 0.0
0.0 264.8 Short-term bank debt 264.8 0.0
0.6 0.0 Trade payables 271.1 483.8
126.7 108.4 Payable to HMN Gashandel A/S 0.0 0.0
2.3 0.2 Payable to HMN Naturgas I/S 17.6 8.2
33.6 37.6 Other payables 10 186.9 96.8
553.3 802.1 Total liabilities and equity 1,362.1 1,280.5
Business risks 11
Contingent liabilities 12
Related parties 13
Shareholder information 14
Group information 15
Change in working capital 16
Purchase obligations and guarantees 17
Subsequent events 18
Accounting policies 19
Statement of Changes in Equity
Share Reserve Retained Total P A R E N T C O M P A N y DKK million capital for price earnings equit y
Equity at 1 January 2014 50.0 0.0 340.2 390.2
Net profit/loss for the year 0.0 0.0 0.9 0.9
Equity at 31 December 2014 50.0 0.0 341.1 391.1
Equity at 1 January 2013 50.0 0.0 345.0 395.0
Net profit/loss for the year 0.0 0.0 -4.8 -4.8
Equity at 31 December 2013 50.0 0.0 340.2 390.2
Share Reserve Retained Total
G R O U P DKK million capital for price earnings equit y
Equity at 1 January 2014 50.0 0.0 641.6 691.6
Net profit/loss for the year 0.0 0.0 -84.3 -84.3
Equity at 31 December 2014 50.0 0.0 557.4 607.4
Equity at 1 January 2013 50.0 0.0 661.0 711.0
Net profit/loss for the year 0.0 0.0 -19.4 -19.4
Equity at 31 December 2013 50.0 0.0 641.6 691.6
The share capital comprises 50,000 shares of DKK 1,000 each. The shares are not divided into classes.
HMN Naturgas I/S has an obligation to HMN Gassalg A/S to inject subordinated loan capital of DKK 125 million.
The estimated difference between the financial results for the year and HMN Gassalg A/S' regulatory income limit is transferred via the distribution of profit to the reserve for price adjustment under equity in order to show that this part of equity is not really avai-lable to the owners.
Cash Flow Statement for HMN Gassalg A/S
P A R E N T C O M P A N y G R O U P
2013 2014 DKK million Note 2014 2013
Cash flow from operating activities:
-7.3 1.6 Operating profit/loss -106.8 -26.3
0.1 0.1 Reversal of depreciation and amortisation 4.6 1.0
0.0 0.0 Reversal of other operating income 59.1 12.6
0.9 0.3 Financial income 2.5 2.0
0.0 -0.2 Financial expenses -1.9 -1.5
0.1 0.2 Financials with no effect on cash and cash equivalents 0.4 0.6
-16.0 0.0 Income tax paid 0.0 -16.0
Changes in working capital:
-322.3 -277.5 Changes in receivables, inventories etc. -58.8 -221.2
-18.3 247.8 Changes in trade payables etc. 16 95.2 -83.8
-362.7 -27.6 Total cash flow from operating activities -5.7 -332.7
Cash flow from investing activities:
0.0 -0.3 Capital investments -69.0 -7.4
0.0 -0.3 Total cash flow from investing activities -69.0 -7.4
-362.7 -27.9 Total increase/decrease in cash and cash equivalents -74.7 -340.0
390.6 27.9 Cash and cash equivalents, beginning of year 82.2 422.3
27.9 0.0 Cash and cash equivalents, end of year 7.5 82.2
Cash and cash equivalents, end of year:
27.9 0.0 Cash 7.5 82.2
Gas transactions, Gas transactions, Group Aktivities 2014 DKK million private customers corporate customers Eliminations total
Extra-group revenue 753.0 3,745.0 0.0 4,497.9 Intra-group revenue 0.0 714.2 -714.2 0.0 Revenue 753.0 4,459.1 -714.2 4,497.9 Operating profit/loss 1.6 -108.4 0.0 -106.8 Net financials 0.1 0.4 0.0 0.6 Income tax -0.8 22.8 0.0 22.0
Net profit/loss for the year 0.9 -85.2 0.0 -8 4.3
Non-current assets 130.6 183.6 -125.9 188.3
Current assets 671.4 1,255.9 -753.6 1,173.8
Asset s 8 02.1 1,439.5 -879.5 1,362.1
Equity 391.1 342.2 -125.9 607.4
Liabilities 411.0 1,097.4 -753.6 754.7
Liabilities and equit y 8 02.1 1,439.5 -879.5 1,362.1
Gas transactions, Gas transactions, Group
Aktivities 2013 DKK million private customers corporate customers Eliminations total
Extra-group revenue 1,124.4 3,981.0 0.0 5,105.4 Intra-group revenue 0.0 1,084.7 -1,084.7 0.0 Revenue 1,124.4 5,065.7 -1,08 4.7 5,105.4 Operating profit/loss -7.3 -19.1 0.0 -26.3 Net financials 0.9 -0.4 0.0 0.5 Income tax 1.6 4.8 0.0 6.4
Net profit/loss for the year -4.8 -14.6 0.0 -19.4
Non-current assets 131.4 36.9 -125.9 42.3
Current assets 422.0 1,252.9 -436.7 1,238.2
Asset s 553.3 1,289.7 -562.6 1,28 0.5
Equity 390.2 427.4 -125.9 691.6
Liabilities 163.1 862.4 -436.7 588.8
Liabilities and equit y 553.3 1,289.7 -562.6 1,28 0.5
Note 1 Segment information
Management has defined the group's operating segments based on the reporting to the group management that forms the basis of decisions. The group Management manages activities based on a distribution of the sale of gas into a regulated and a non-regulated part.
Accordingly, the segments to be reported are:
Gas transactions, private customers, comprising activities in connection with the sale of gas to single-family homes etc.
Gas transactions, corporate customers, comprising the sale of natural gas on individually negotiated terms. Information on business segments is based on the group's return and risk and on the internal financial management. Internal transactions and allocation between segments are performed on an arm's length basis.
P A R E N T C O M P A N y G R O U P 2013 2014 Note 2 Fee for auditors appointed by the general meeting DKK million 2014 2013
0.2 0.1 Auditors' fee 0.2 0.3
0.2 0.1 Auditors' fee, statutor y audit 0.2 0.3
P A R E N T C O M P A N y G R O U P
2013 2014 Note 3 Staf f cost s DKK million 2014 2013
1.6 1.6 Remuneration of the Executive Board 3.2 4.5
0.2 0.2 Total remuneration of the Board of Directors 0.4 0.3
The company employs no staff other than the members of the Executive Board. Other employees are recruited and employed by HMN Naturgas I/S, and both the employees and the Executive Board are remunerated by HMN Naturgas I/S. Pursuant to the service agreements concluded, the company covers its share of the owners' staff costs, including wages, holiday pay and other staff-related expenses.
P A R E N T C O M P A N y G R O U P
2013 2014 Note 4 Net financials DKK million 2014 2013
0.9 0.1 Interest income on cash funds from operations 0.5 1.8
0.0 0.0 Interest income on financial receivables 2.0 0.1
0.0 0.2 Receivable from HMN Gashandel A/S 0.0 0.1
0.9 0.3 Total financial income 2.5 2.0
Guarantee commission and interest expenses
0.0 0.0 relating to subordinated loan capital -0.6 -0.5
0.0 -0.2 Interest expenses for HMN Naturgas I/S -0.3 0.0
0.0 0.0 Exchange rate adjustment, net -1.1 -1.0
0.0 -0.2 Total financial expenses -1.9 -1.5
P A R E N T C O M P A N y G R O U P 2013 2014 Note 5 Tax on profit/loss for the year DKK million 2014 2013
0.0 -0.5 Current tax for the year 0.0 0.0
0.0 0.0 Regulation for previous years 0.0 0.0
1.6 -0.3 Deferred tax for the year 22.0 6.4
1.6 -0.8 Total tax for the year 22.0 6.4
1.6 -0.8 Tax on profit/loss for the year 22.0 6.4
1.6 -0.8 Total tax for the year 22.0 6.4
25.0% 24.5% Income tax rate 24.5% 25.0%
Tax effect of:
0.0% 19.9% Tax asset impairment -3.8% 0.0%
-0.8% 0.0% Other tax adjustments 0.0% -0.3%
24.2% 4 4.4% Ef fective tax rate 20.7% 24.7%
Tax asset comprises:
5.0 4.4 Loss carry-over 32.1 9.8
0.2 0.0 Adjustment of tax rate for deferred tax 0.0 0.3
0.0 0.0 Other time differences 0.0 0.0
5.2 4.4 Total tax asset 32.1 10.1
The company is taxed jointly with its subsidiary but is liable only for the share of the tax that is attributable to the company's income. Management expects that profits liable to taxation will be generated in the coming years, thereby utilising the loss carryforward.
Note 6 Non-current assets DKK million
Proper t y, plant Total
G R O U P and equipment Investment s non-current
Cost at 1 January 2014 9.6 25.0 34.6
Additions 70.3 62.4 132.7
Disposals 0.0 -2.8 -2.8
Cost at 31 December 2014 79.9 8 4.6 16 4.4
Depreciation at 1 January 2014 2.4 0.0 2.4
Depreciation for the year 5.9 0.0 5.9
Depreciation at 31 December 2014 8.2 0.0 8.2 Carr ying amount at 31 December 2014 71.7 8 4.6 156.2
Cost at 1 January 2013 2.2 4.8 7.0 Additions 7.4 80.5 87.9 Disposals 0.0 -60.4 -60.4 Cost at 31 December 2013 9.6 25.0 34.6 Depreciation at 1 January 2013 1.3 0.0 1.3
Depreciation for the year 1.0 0.0 1.0
Depreciation at 31 December 2013 2.4 0.0 2.4 Carr ying amount at 31 December 2013 7.2 25.0 32.2
Note 7 Investments in subsidairy DKK million
P A R E N T C O M P A N y 2014 2013
Cost at 1 January 55.0 55.0
Additions during the year 0.0 0.0
Disposals during the year 0.0 0.0
Cost at 31 December 55.0 55.0
Revaluations at 1 January 70.9 70.9
Reversed revaluation of disposals during the year 0.0 0.0
Value adjustment for the year 0.0 0.0
Revaluations at 31 December 70.9 70.9
Carr ying amount at 31 December 125.9 125.9
Investments in subsidiaries comprise:
P A R E N T C O M P A N y G R O U P
2013 2014 Note 8 Provision for bad debt s DKK million 2014 2013
6.8 6.0 Provision for bad debts at 1 January 7.9 8.9
-4.9 -3.6 Ascertained losses -4.4 -6.5
-0.1 -0.1 Reversal of provisions for expected losses -0.1 -0.2
4.2 1.0 Provision for expected losses for the year 1.1 5.7
6.0 3.4 Provision for bad debt s at 31 December 4.4 7.9
Receivables from customers
51.0 24.6 Not due 627.2 711.8
0.1 0.0 Less than one month 0.8 1.9
0.2 0.1 More than one month 1.8 2.6
51.3 24.7 Total receivables from customers 629.8 716.3
All receivables from customers fall due within one year.
P A R E N T C O M P A N y G R O U P
2013 2014 Note 9 Other receivables DKK million 2014 2013
16.5 0.0 VAT and duties receivable 0.0 16.5
0.0 0.0 Market value of derivatives to hedge purchase and sales contracts 24.3 12.7
0.1 0.1 Other receivables 57.5 4.5
16.6 0.1 Total other receivables 81.8 33.7
P A R E N T C O M P A N y G R O U P
2013 2014 Note 10 Other payables DKK million 2014 2013
0.0 0.0 Market value of derivatives to hedge purchase and sales contracts 86.3 15.6
33.3 37.1 VAT and duties payable 93.6 80.5
0.3 0.5 Other items 7.0 0.7
Note 11 Business risks
Risks related to the company's volume and price risk in connection with purchase and sales contracts for natural gas could be the following:
Volume risks in purchase and sales contracts for natural gas
The HMN Gassalg group's volume risk for natural gas arises when there is no connection between the volumes delivered to the companies for a period of time, including the use of reserved natural gas storage, and the volumes purchased by the company's customers in the same period. Many customers' consumption of natural gas is strongly influenced by the weather.
As most of HMN Gashandel A/S' purchases are made on a daily basis, volume risk is minimal. Volume risk consists of the bid/offer spread only, or if we have purchased gas on an indexation that is inconsistent with the one at which we have sold gas. For example, if we have purchased gas on an NCG indexation and sold to GPN.
Nordea has issued guarantees for a total of DKK 155 million for HMN Gashandel A/S and its parent company HMN Gassalg A/S in connection with purchase agreements (2013: DKK 228 million).
Price risks in relation to the conclusion of purchase and sales contracts
Prices for large commercial customers, in particular, are determined via negotiation, and a number of these customers want special price adjust-ment formulas which may include different weighting of the price developadjust-ment in various oil products, exchange prices for natural gas, exchange rates or that the sale is effected at fixed prices.
Correspondingly, HMN Gashandel A/S purchases natural gas at different prices adjusted by the price development in various oil products, gas exchange prices, exchange rates or the natural gas purchase is effected at fixed prices.
The risk for HMN Gashandel A/S arises when the volumes purchased and sold on the same price adjustment terms are not completely identical, and when delivery is not effected at the exact same time. The financial risks are substantial due to the high volatility in gas and oil prices. Therefore, HMN Gashandel A/S undertakes considerable hedging on the financial market. This makes it possible to manage and minimise the risk that occurs when the price adjustment terms for the purchase and sale of natural gas are not identical. The company hedges price and foreign-ex-change risks relating to binding agreements on future purchases and sales of gas using swaps and, to a limited extent, call options and put options. The provisions on hedge accounting are not used.
Note 11 continued Gas contract s and price derivatives
The price derivatives, which are based on oil prices, natural gas prices and exchange rates, have a net fair value at 31 December 2014 of a negative DKK 62.0 million (2013: a negative DKK 2.8 million).
A sensitivity analysis of the financial portfolio shows the effects of a 10% change in oil prices, natural gas prices and the USD exchange rate. Estimated earnings impac t
Risk Price change 2014 2013
Change in oil prices, natural gas prices and the USD exchange rate 10% 31.4 73.4 Change in oil prices, natural gas prices and the USD exchange rate -10 % -31.4 -73.4
Note 14 Shareholder information
The company is owned by the following shareholders: HMN Naturgas I/S, Gladsaxe, Denmark, 100%
Note 15 Group information
The Consolidated Financial Statements of HMN Gassalg A/S include the subsidiary HMN Gashandel A/S. HMN Gassalg A/S is included in the Consolidated Financial Statements of HMN Naturgas I/S (the largest group).
The ultimate parent company's Consolidated Financial Statements are available at www.naturgas.dk.
Note 12 Contingent liabilities
The parent company has an obligation to HMN Gashandel A/S to inject subordinated loan capital of DKK 25 million.
The HMN Gassalg group's companies are jointly and severally liable for tax on the group's jointly taxed income etc. The total amount appears from the Annual Report of HMN Gassalg A/S, the administration company in relation to joint taxation.
HMN Gassalg A/S is currently involved in disputes with counterparties. In Management's opinion, the estimated uncertainties are too large to recognise a provision.
Note 13 Related par ties
The company has related parties exercising control and related parties by way of the parent company's subsidiary. The company's Management and the parent company's Management exercise significant influence.
In 2014, HMN Gassalg A/S purchased various administrative services from HMN Naturgas I/S totalling DKK 25.2 million (2013: DKK 26.0 million). Management's remuneration etc. is stated in note 3.
To counter the credit risk relating to counterparties when entering into these financial agreements, HMN Gashandel A/S has concluded Master Agreements (framework agreements), thereby ensuring that it is usually possible to mutually offset outstanding accounts with the same counter-party. HMN Gashandel A/S rates counterparties on a regular basis and only enters into transactions with counterparties with good credit ratings. Furthermore, the companies use agreements on continuous collateral security in the form of pledge to minimise the credit risk.
Due to the fact that financial agreements are solely concluded for the purpose of hedging risks on agreements concluded, a similar change will occur in the value of customer agreements. As the provisions on hedge accounting are not applied, the effect of this will only be recognised as the gas is delivered.
P A R E N T C O M P A N y G R O U P
2013 2014 Note 16 Change in working capital DKK million 2014 2013
-322.3 -277.5 Change in receivables and inventories -58.8 -221.2
-18.3 247.8 Change in trade payables etc. 95.2 -83.8
-340.6 -29.7 Total change in working capital 36.4 -305.1
Note 17 Purchase obligations and guarantees
The group has no binding agreements on the purchase of natural gas at end-2014 (2013: DKK 2,221 million) on take-or-pay terms. The agree-ments expired in in 2014.
The purchase obligations have been concluded jointly with the subsidiary HMN Gashandel A/S.
Nordea has issued guarantees for a total of DKK 155 million for HMN Gashandel A/S jointly with the parent company HMN Gassalg A/S (2013: DKK 228 million).
Note 18 Accounting policies
Basis of accounting
The Annual Report is presented in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements concerning annual reports for reporting class C, cf. the Danish Executive Order on IFRS Adoption issued in pursuance of the Danish Financial Statements Act. The Annual Report also complies with IFRS issued by the International Accounting Standards Board (IASB). The Annual Report comprises Consolidated Financial Statements for the company and its subsidiary as well as separate Financial Statements for the parent company.
New accounting policies and information for 2014
HMN Gassalg A/S has implemented the standards and interpretations effective from 2014. The standards and interpretations relevant to HMN Gassalg A/S include amendment to IAS 32 on offsetting financial assets and financial liabilities, amendment to IAS 36 on impairment of non-cur-rent assets and IFRIC 21 on levies imposed by governments.
The implementation of the new standards has not affected accounting policies, and the accounting policies are consistent with those applied last year.
The implementation of the new standards affects only note disclosures, and, apart from the above amendments, the accounting policies are consistent with those applied in previous years.
New accounting standards not yet effective
At the time of the presentation of the Annual Report 2014, the IASB has published various new standards and interpretations which will apply to financial years beginning after 31 December 2014. Therefore, these standards have not been applied in the preparation of this annual report. The IASB has published the following new financial reporting standards and interpretations that are deemed to be of relevance to HMN Gassalg A/S.
Adopted by the EU: