Annual report 2014/2015

Annual Report 2014/15 (01.04.2014 – 31.03.2015)

KNI A/S Reg. no. 209.713

Contents Page

Company information

1

Management statement

7

Independent auditor’s report

8

Key figures

9

Management report

10

Applied accounting principles

43

Profit and loss account

50

Balance sheet

51

Equity capital statement

53

Cash flow statement

54

Notes

55

Segment accounts

67

Company information Company name: Subsidiary names:

KNI A/S

Address:

J. M. Jensenip 2, Postbox 319 3911 Sisimiut

Registration number GER number CVR/SE number Domicile

209.713 1660 7398 1660 7398 Qeqqata Municipality

Tel. Fax E-mail Website:

+299 86 24 44 +299 86 62 63 kni@kni.gl www.kni.gl

Pilersuisoq A/S (KNI A/S) Polaroil A/S (KNI A/S)

Shareholder: Government of Greenland, Postbox 1015, 3900 Nuuk - (ownership share: 100%)

Board of Directors:

Niels Thomsen (b. 1981) Chairman of the Board of Directors (appointed by the government of Greenland) since 2013 Educational background: MSc (Public Administration) Current career: Managing director/ CEO, Halibut Greenland ApS. Also occupies other directorships in companies in Greenland.

Competencies: Experienced in operations, organisation and business development, strategy formation and implementation. In addition, a good knowledge of the political system in Greenland.

1

Høgni Hansen (b. 1961) Vice-Chairman of the Board of Directors (appointed by the government of Greenland) since 2014.

Educational background: Commercial training.

Current career: Managing director/CEO, P/F Poul Hansen Group. Also occupies other directorships in companies in the Faroe Islands.

Competencies: Experienced in operations, organisation and business development, strategy formation and implementation. Possesses a good knowledge of the retail and meat industries.

Bodil Nyboe Andersen (b. 1940) Member of the Board of Directors (appointed by the government of Greenland) since 2014.

Educational background: MA (Political Science) and former director of the National Bank.

Current career: Occupies other directorships in large companies in Denmark.

Competencies: International top management in the financial sector and board positions in large companies. In addition, extensive experience in strategy, organisation and personnel matters.

2

Annette K. Sadolin (b. 1947) Member of the Board of Directors (appointed by the government of Greenland) since 2014.

Educational background: LLM Current career: Occupies other directorships in large companies in Denmark.

Competencies: International top management and board positions in large companies. In addition, extensive experience in strategy, organisation and personnel matters, legal matters, risk management, and sales and marketing.

Julia Pars (b. 1968) Member of the Board of Directors (appointed by the government of Greenland) since 2014.

Educational background: MBA Current career: Director of Katuaq – the Greenland Cultural Centre. Also occupies other directorships in companies in the Nordic countries.

Competencies: Experienced in operations, organisational and business development, strategy formation and implementation.

3

Jørn Rosenberg (b. 1947).

Member of the Board of Directors (appointed by the government of Greenland) since 2014.

Educational background: Degree in commerce and various diploma courses.

Current career: Board work.

Competencies: Experienced in operations, organisational and business development, strategy formation and implementation. In addition, a thorough knowledge of Greenlandic society.

Jens Jørgen Petersen (b. 1960).

Member of the Board of Directors (staff representative) since 2014.

Educational background: Marine engineer and commercial training.

Current career: Regional tank installation administrator for Qaqortoq.

Competencies: Possesses a sound knowledge of tank installation administration and personnel management.

4

Inger Eriksen (b. 1959) Member of the Board of Directors (staff representative) since 2011.

Educational background: Commercial and office, as well as various management training programmes.

Current career: Training consultant for KNI A/S Competencies: Sound knowledge of organisation and management.

H.P. Lynge-Larsen (b. 1967) Member of the Board of Directors (staff representative) since 2008.

Educational background: Commercial and office, as well as various courses in finances.

Current career: Chef controller in the finance department of KNI A/S. Competencies: Experienced in finance and accounts preparation, budgeting, financial analysis, etc.

5

Management:

Peter Grønvold Samuelsen (b. 1960) Managing director / CEO, KNI A/S Educational background: MSc (Public Administration) Competencies: Experienced in operations, organisation and business development, strategy formation and implementation. Has also previously held other directorships in companies in Greenland, both as chairman and as an ordinary board member.

Auditors: Deloitte Certified Accountants

6

Management statement We have today presented the annual report for KNI A/S for the financial year 1 April 2014 - 31 March 2015.

The annual report is presented in conformity with the Financial Statements Act. We consider the chosen accounting policies to be appropriate, such that the annual report gives a true and fair view of the group's and the parent company’s assets and liabilities, financial position, result and cash flow for the group.

We recommend the annual general meeting to endorse the annual report.

Sisimiut, 25 June 2015

Management:

Peter Grønvold Samuelsen

Board of Directors:

Niels Thomsen Chairman

Høgni Hansen Vice-chairman

Bodil Nyboe Andersen

Annette K. Sadolin

Jørn Rosenberg

Julia Pars

Inger Eriksen

H. P. Lynge-Larsen

Jens Jørgen Petersen

7

Independent auditor's report To the shareholder in KNI A/S We have audited the annual report of KNI A/S for the financial year 1 April 2014 - 31 March 2015, pages 1-66, which encompass the management statement, accounting policies, income statement, balance sheet, capital and reserves calculation and notes for both the Group and the Parent Company, plus the cash flow statement for the Group. The annual report is presented in conformity with the Financial Statements Act. Management's responsibility for the annual report The management is responsible for drawing up an annual report which gives a true and fair view in accordance with the Financial Statements Act. The management is also responsible for such internal control as the management determines is necessary in order to draw up an annual report that is free from material misstatement, whether due to fraud or error.

Auditor's responsibility Our responsibility is to express an opinion on the annual report on the basis of our audit. We have conducted our audit in accordance with international auditing standards and additional requirements under Greenlandic auditing legislation. This demands that we comply with ethical requirements and plan and perform the audit to obtain a high degree of assurance that the annual report is free from material misstatement.

An audit entails performing procedures to secure auditable evidence for the amounts and disclosures set forth in the annual report. The procedures selected depend on the auditor's assessment, including assessment of risk of material misstatement in the annual report, whether due to fraud or error. With this risk assessment, the auditor reviews internal controls relevant to the preparation and presentation of an annual report which presents an accurate picture, with a view to carrying out auditing procedures which are applicable to the circumstances, but not with the intent to express a conclusion concerning the reliability of the internal controls at the company. An audit also includes an assessment of whether the accounting policies chosen by the management are appropriate, and whether the accounting estimates exercised by the management are reasonable, as well as an evaluation of the overall presentation of the annual report.

It is our view that the audit evidence obtained provides a sufficient and appropriate basis for our opinion.

The audit has not resulted in any qualification.

Conclusion In our opinion, the annual report gives a true picture of the assets, liabilities and financial position of the group and parent company as of 31 March 2015, and of the results of the operations of the group and the parent company and cash flows for the group for the financial year 1 April 2014 - 31 March 2015, in accordance with the Financial Statements Act. Sisimiut, 25 June 2015

Deloitte Certified Accountants Claus Bech Certified Public Accountant

Peter A. Wistoft Certified Public Accountant 8

Financial highlights and key figures for the Group Financial highlights

1/4 - 31/3

1/4 - 31/3

1/4 - 31/3

1/4 - 31/3

1/4 - 31/3

(DKK mill.)

2014/15

2013/14

2012/13

2011/12

2010/11

Result: Net revenue

2,452.8

2,393.4

2,468.0

2,537.7

2,174.0

Operating profit (EBIT)

138.3

82.0

43.1

56.7

83.4

Result of financial items

(52.2)

(20.0)

(3.6)

(3.6)

(11.6)

Pre-tax profit

86.1

62.3

39.6

53.1

71.8

Result for the year

58.1

42.3

34.7

35.9

48.9

Fixed assets

934.3

942.4

912.8

799.3

741.5

Inventories

911.6

943.5

854.1

716.9

753.6

76.7

82.2

77.5

79.5

81.1

891.3

904.9

937.2

920.0

857.7

2,296.7

2,061.5

1,995.6

1,700.0

1,659.3

69.8

108.6

188.1

125.2

97.1

1/4 - 31/3

1/4 - 31/3

1/4 - 31/3

1/4 - 31/3

1/4 - 31/3

2014/15

2013/14

2012/13

2011/12

2010/11

Balance:

Trade debtors Equity Balance sheet total Investments in tangible assets

Key figures

EBIT - margin (%)

5.6%

3.4%

1.7%

2.2%

3.8%

20.2%

16.3%

12.5%

13.5%

16.2%

Net revenue/Invested capital

2.4

2.4

2.7

2.9

2.5

Financial gearing

0.8

0.9

0.8

0.6

0.5

6.5%

4.7%

3.7%

3.9%

5.7%

38.8%

43.9%

47.0%

54.1%

51.7%

3.5

5.4

6.9

4.5

3.4

Return on invested capital (%)

Return on equity (%) Solvency ratio (%) Net interest-bearing debt / EBITDA

9

Management report General remarks With pre-tax profits of DKK 86.1 million, KNI is maintaining its momentum and the very positive development which was set in motion in the financial year 2013/14, and which in 2014/15 delivered the best result in the past 10 financial years.

The financial year 2014/15 has been another exciting and challenging year for KNI, during which the goal of implementing the strategy project “KNI towards 2016” has been almost fully achieved.

The strategy project, which in essence is all about transforming the Company from a traditional supply company into a modern trade and service company with a strong and sustained customer focus, is thus expected to keep to its original schedule, with completion within the next financial year 2015/16.

With our presence in almost all the villages and towns of Greenland, we play a central role in society. That means we share a joint responsibility for the development of the country. We aim to create results on the basis of local needs, overall national requirements and the greatest possible consideration for the surrounding society and the Arctic environment. We are engaged in a process of internal restructuring, under the motto: “From supply focus to customer focus”. The goal is to refine our service concepts, shop structure and customer contact.

KNI’s vision is: “to be a dynamic and profitable company that understands its customers and their needs”.

KNI thus aims to be:   

The customers' preferred choice The best workplace in Greenland An active contributor to the development of society

KNI’s mission is: “to operate a trading and service company to the benefit of our customers, employees and owners, and the development of society”.

The current overall development of the Company specifically supports the growth and earnings targets contained in the strategy “KNI towards 2016”, which forms the basis for the strategic change. The overall goal of the strategy work is to increase earnings and, on the basis of KNI’s vision and values, create a more customer-oriented company.

The pre-tax profit of DKK 86.1 million underlines KNI’s status as an economically viable group that is continuing to maintain satisfactory performance. Despite continuing tough market conditions, in which urbanisation, in particular, is impacting the sales areas of the Goods Division, the Company has managed to improve its earnings compared to the previous year.

10

The improvement in profits compared to the previous year has mainly occurred through the continuing effect of the implementation of the strategy project, a continued very high focus on optimising cost control and process control, and the realisation of lower operational depreciation.

The year has also featured a milestone in the Company’s history. KNI’s history dates back to the establishment of the Royal Greenland Trade Department (KGH) in 1774, and we are thus an essential part of the history of Greenland. 2014 marked 240 years since KNI was founded, under the name KGH. The state-run trading company was taken over by Greenland Home Rule in 1986, and since then the Company, under its new name Kaalallit Niuerfiat, has undergone several restructuring processes.

After the transfer of KGH to Greenland Home Rule a process was initiated, extending over several years, in which several of the Company’s units were hived off into independent companies. Many well-known Greenlandic companies have thus historically been a part of KNI, including Royal Greenland, Royal Arctic Line, Post Greenland, Pisiffik and others.

Today, KNI is a company run on the basis of modern business principles. We are proud of our history, and we are now taking our 240 years of experience with us into a new era – a period during which we will adapt to the major societal and industrial challenges that Greenland is facing.

KNI now consists of four company units, all of which are managed on the basis of modern principles. We supply all of Greenland with groceries, consumer goods and fuels.  

 

Via our energy division, Polaroil, we are responsible for the supply of liquid fuels to all of Greenland.

Our retail chain, Pilersuisoq, operates 66 shops selling groceries and other consumer goods.

Moreover, Pilersuisoq operates the duty-free trade in Greenland’s international airport in Kangerlussuaq, as well as the webshop Pisisa.gl.

KNI Engros sells and distributes wholesale products to businesses and institutions throughout Greenland.

At the Neqi slaughterhouse in Narsaq, around 20,000 lambs are slaughtered and processed each year.

11

The population of the villages and small towns where KNI operates its shops is declining. Since 2005, approximately 2,700 people have moved out of the sales area of the Goods Division. This depopulation corresponds to two towns the size of Qasigiannguit – or four towns the size of Qaanaaq – disappearing from the Goods Division’s sales area.

For this reason alone KNI’s growth opportunities are severely limited, while the Group’s fixed costs remain unchanged, since it is not directly possible to shut down unprofitable shops, even in very sparsely populated villages. The service contract states that KNI has a supply obligation, with which we of course comply.

The depopulation trend thus represents a constant challenge to the Company’s ability to generate sufficient earnings to cover the costs of goods supply. The Company’s current strategy focuses amongst other things on realising the Good Division’s full potential through the exercise of even better business acumen as its foundation, i.e. the support functions at headquarters that assist the Goods Division must be strengthened.

12

There has also been a major focus on the organisational area during the financial year 2014/15. In June 2014, former acting managers Peter Grønvold Samuelsen (CEO), Jan H. Lynge Pedersen (CFO) and Tage Lindegaard (Energy Director) were elected by the Board of Directors and the Management to continue their work in their former acting positions.

In other significant organisational changes, the post of Chain Director in Pilersuisoq changed hands in early November 2014, and is now occupied by former Head of Sales Finn Fabricius.

On the training front, work in the past year has continued on the large-scale skills development project ‘Taqqissuut’ which was launched in spring 2014. This project contains a concrete plan for training and skills enhancement for all employees of the Company.

The project has been well received by the Company’s employees, and there are great expectations towards the future co-operation and the potential results of this skills enhancement project. It is essential for KNI to fulfil its supply obligation all year round.

We are therefore also proud that we have decided to set continually higher demands and goals, and thereby increase our level of expertise, including via the strategy project “KNI towards 2016”, but also in terms of greater and clearer requirements towards management and staff and a well-defined distribution of roles and responsibilities in the organisation.

We wish to continually demonstrate towards our fellow Greenlanders, customers and partners that everything we do in the KNI Group will and must reflect very considerable business acumen.

Annual report It is the view of the management that all essential information for evaluating the Company’s and the Group’s financial position, profit for the year and financial development are contained in the annual report and this account.

Main activity The activities of KNI A/S are based on Parliamentary Regulation no. 4 of 6 June 1997, Parliamentary Regulation no. 1 of 31 May 2001 and Parliamentary Regulation no. 7 of 14 November 2004.

KNI is a Greenlandic company that shows respect for Greenland’s social and cultural values, and is operated on commercial principles on the basis of solidarity towards all parts of the Greenlandic community. Quality, safety, environmental awareness and the best possible level of service must characterise the activities of KNI. The Company will strive to achieve profits that will ensure continued operation on a financially secure basis, including the provision of sufficient funds for maintenance and necessary investments, together with satisfactory solvency and liquidity.

13

The Company will seek to carry out its activities and achieve its goals through targeted focus on the following areas:        

KNI A/S will create a decentralised organisation, in which important decisions are made as close to the customers and employees as possible.

KNI A/S will ensure high-priority training for employees at all levels to ensure that qualifications, skills and responsibility go together.

KNI A/S will undertake follow-up, evaluation and adjustment of goals, strategies and action plans, which will be achieved through documentation and measurable success criteria.

KNI A/S will develop existing business areas so that they are always characterised by good business acumen, good service and efficiency.

KNI A/S will continuously maintain strict and visible cost control.

KNI A/S must be a good and attractive workplace that focuses on skills and motivation.

The administrative systems must provide users with the necessary clarity, and must be simple, efficient and economical. KNI A/S prioritises operating reliability above technical innovation.

KNI A/S aims to provide clear and targeted information on the Company’s strategies to its owners and employees, and to the Greenlandic community.

The main activities of the parent company’s two primary business units in 2014/15 were: Goods Division:  Retail and wholesale sales in villages and towns.  Distribution and wholesale sales of beer and soft drinks.  Sales of service tasks for partners in villages and outlying districts.

Energy Division:  Import, distribution and sale of liquid fuels.  Import, distribution and sale of lubricants, bottled and industrial gases.

Some parts of KNI’s activities cannot be carried out on commercial and market terms.

Consequently, a service contract has been entered into with the government of Greenland for payment of these tasks for society.

The current service contract for goods supplies covers the period 1 April 2012 to 31 December 2016, and states in essence the following: 

KNI has a supply duty for all villages, including Kangerlussuaq and Narsarsuaq, as well as the towns Qaanaaq, Upernavik, Uummannaq, Qeqertarsuaq, Qasigiannguit and Tasiilaq.

14



The level of service is as follows:

Inhabitants Opening hours Basic assortment, minimum number of product codes.

Depot 1-29 Min. 2 hours weekly 146

Kiosk 30-75 Min. 10 hours weekly 236

Service shop 76-120 Min. 20 hours weekly 294

Village shop 121-600 Min. 20 hours weekly 341

Nanoq shop* More than 601 Free Free

*Qaanaaq, Upernavik, Uummannaq, Qeqertarsuaq, Qasigiannguit & Tasiilaq





Regulation of KNI’s prices in shops, kiosks, service shops and village shops of goods covered by the basic range shall not exceed the development in Greenland’s consumer price index for the relevant categories by more than 2.2% for the full calendar year.

Total payment for the agreed services amounts to DKK 36 million annually, and covers only villages with up to 600 inhabitants.

By entering into the service contract, KNI has thus assumed an obligation to operate shops in villages and small towns where retail and wholesale services cannot be maintained on a profitable basis.

Similarly, a service contract has been entered into for the period 1 April 2012 - 31 December 2016 for the sale of liquid fuels in Greenland, under which the Company does not receive payment, but which sets a maximum limit on what the Company may earn on oil sold under the service contract.

In essence, the service contract states the following:  



 

KNI has a supply duty for arctic gas oil, motor gas oil, petrol, kerosene and Jet A-1.

The supply obligation for the above products encompasses civil society in Greenland, i.e. villages, towns, sheep and reindeer farms, and selected telecommunications stations on Greenland’s south and southwest coast.

The supply obligation does not apply to: 1) Bunkering of cruise ships, Atlantic ships and ocean-going trawlers, ships on international routes or ships engaged in the exploration or extraction of oil, gas or minerals.

2) Fishing vessels, with the exception of GR-registered vessels under 200 GRT. 3) Major infrastructure works outside urban areas and mines.

4) Direct deliveries to Mittarfeqarfiit’s own tank installations.

The supply obligation is carried out at identical prices for all consumers, calculated on the basis of a profit target.

Of the profit target, an average of DKK 24 million annually is applied to service the maintenance backlog calculated in 2009 for the tank installations of the Energy Division. It is expected that the maintenance backlog will be completed in 2024.

15

In addition to the activities covered by the service contracts, KNI also operates commercial retail activities in selected towns, wholesale activities throughout Greenland, duty free services in Kangerlussuaq and fuel supplies for ships and mining companies.

Schematically, KNI’s overall activities may be illustrated as follows: Division Goods

Segment Retail, within the service contract

Retail, outside the service contract

Energy

Wholesale

Greenland.

Duty Free Fuel, within the service contract

Kangerlussuaq Towns and villages, as well as reindeer and sheep farms.

Ships and mining companies in Greenland.

Greenland

Fuel, outside the service contract Neqi

Market Villages, incl.

Narsarsuaq and Kangerlussuaq.

Qaanaaq, Upernavik, Uummannaq, Qeqertarsuaq, Qasigiannguit & Tasiilaq.

Nanortalik, Narsaq, Paamiut & Aasiaat.

Slaughterhouse

Activity Supply obligation for goods, with service contract payment.

Service agreements* Supply obligation for goods, without service contract payment.

Service agreements* Commercial activity in competition with Brugseni & Pisiffik.

Service agreements* Commercial activity in competition with KK Engros and Arctic Import, amongst others.

Includes beer/soft drinks distribution for Nuuk Imeq and supplies to smaller private chains, as well as catering, ships’ chandlers, etc.

Commercial activity.

Supply obligation, with requirement for identical prices.

Commercial activity.

Slaughtering and processing of lamb, cattle and reindeer under service contract with the government of Greenland.

*Service agreements are commercial agreements for the provision of a number of functions on behalf of third parties, as follows: 1. Government of Greenland, money supply 2. Government of Greenland, harbour authorities 3. Air Greenland, aircraft, passenger and cargo handling 4. Mittarfeqarfiit, helistops 5. Arctic Umiaq Line, ship tickets 6. Royal Arctic Line, freight handling 7. POST Greenland, post handling 8. Polaroil, distribution

Ownership KNI A/S is 100% owned by the government of Greenland. The Company’s share capital amounts to DKK 310 million.

16

The table below shows the net cash flows that have been generated between the parent company and the government of Greenland in the period from 2006 until the end of the financial year 2014/15.

(DKK mill.)

2006

2007

2008

2009 (*)

09/10

10/11

11/12

12/13

13/14

14/15

Received through the service contract: KNI A/S overall: Payment from the government

-52.1 -52.1

-50.1 -50.1

-45.1 -45.1

-10.0 -10.0

-40.1 -40.1

-39.3 -39.3

-37.0 -37.0

-36.0 -36.0

-36.0 -36.0

-36.0 -36.0

Corporate tax: Corporate tax - KNI A/S

3.7

8.4

Personal tax: Personal taxes - KNI A/S (**)

64.5

70.5

72.8

17.6

69.7

66.5

67.4

68.4

69.3

70.0

Corporate dividend: Dividend - KNI A/S

20.0

20.0

20.0

30.0

Payments to the government

64.5

74.2

72.8

17.6

69.7

66.5

87.4

88.4

89.3

108.4

Net cash flows to the government

12.4

24.1

27.7

7.6

29.6

27.2

50.4

52.4

53.3

72.4

(*): This period covers only the restructuring financial year for the period 1 January to 31 March 2009. (**): In the period 2000-2005, only personal taxes for white-collar employees are included – not hourly-paid workers.

During this period, KNI thus received DKK 381.7 million in service contract payments from the government of Greenland, while within the same period the Company repaid DKK 738.8 million to the government and municipalities. During the period 2006 - 2014/15, KNI thus contributed a net positive cash flow to the government and municipalities of Greenland amounting to DKK 357.1 million.

Group structure

Affiliates: As of the balance sheet date, KNI A/S owns 100% of the shares in Neqi A/S (share capital DKK 0.6 million) and KNI Ejendomme A/S (share capital DKK 1.0 million).

In addition, KNI A/S has, as of the balance sheet date, an ownership share in Akia Sisimiut A/S corresponding to 82.5% (share capital DKK 3.0 million).

Associates: Pitsaasut ApS, in which the ownership share is 50% (share capital DKK 80,000).

17

The year in brief for the Group This annual report covers the period from 1 April 2014 to 31 March 2015.

During the financial year 2014/15 revenue amounted to DKK 2,452 million, corresponding to a rise of just under DKK 59 million compared to the previous financial year.

KNI overall - net revenue (DKK mill.)

2014/15 2.600.000 2.500.000 2.400.000 2.300.000 2.200.000 2.100.000 2.000.000 1.900.000 Realiseret

2010/11

2011/12

2012/13

2013/14

2014/15

2.174.000

2.537.700

2.468.000

2.393.400

2.452.800

This rise is mainly attributable to the Goods Division, where an increase in revenue from wholesale activities has been realised. Within the retail market, the level of activity has on the other hand remained unchanged.

Similarly, revenue in the Energy Division has been maintained at the same level as the previous year.

Pre-tax profit for the Group as a whole is DKK 86.1 million for the financial year, as against DKK 62.3 million the previous year. The result is thus an improvement of DKK 23.8 million, corresponding to 38.2%.

KNI overall - pre-tax profit (DKK mill.)

2014/15 100.000 80.000 60.000 40.000 20.000 Realiseret

2010/11

2011/12

2012/13

2013/14

2014/15

71.800

53.100

39.600

62.300

86.100

18

The profit and loss account after tax totalled a profit of DKK 58.2 million, compared to a profit of DKK 42.4 million in the financial year 2013/14.

The improved profitability compared to the previous financial year has been achieved on the basis of the following three factors:   

Continuing work on the implementation of the strategy project “KNI towards 2016” Continued significant focus on cost savings and process optimisations Reduced operational depreciation

With respect to the continued focus on cost control, this has resulted in a fall in the total cost of operations and staff in the Group from DKK 434.4 million in the annual report for 2013/14 to DKK 401.3 million in the current financial year.

The savings have mainly been made in operating costs, while the impact on the overall savings from personnel costs has been smaller.

KNI overall - costs (DKK mill.)

2014/15 300.000 250.000 200.000 150.000 100.000 50.000 -

2010/11

2011/12

2012/13

2013/14

2014/15

Eksterne

172.998

194.026

221.538

188.335

163.495

Personale

229.346

230.857

238.149

246.059

237.850

The Company’s net financial costs have risen from DKK 19.7 million in 2013/14 to DKK 52.2 million in 2014/15, corresponding to a rise of DKK 32.5 million. This increase, however, includes revenue on product hedges of DKK 15.0 million in 2013/14. When adjustment is made for this in the benchmark, financial costs have increased by DKK 17.5 million. This increase is primarily attributable to the cost of financing the Company’s working capital.

At the end of the current financial year, KNI had a registered outflow of DKK 654 million in credit facilities, as against DKK 754 million the previous year – a reduction in credit utilisation of DKK 100 million.

This decline is mainly due to positive changes in working capital corresponding to around DKK 56.3 million, in particular a reduction in inventories. The investment level was also significantly lower than in the previous financial year, which had a positive impact of approximately DKK 40 million.

19

In general, cash flows have thus been significantly healthier in the financial year 2014/15 than was the case in 2013/14. Cash flows from the group’s primary operating activities improved overall by DKK 214 million, and thus amounted to DKK 266.0 million at the end of the financial year 2014/15.

In addition, the level of investment underwent a significant decline corresponding to DKK 39 million, and thus overall comprised DKK 69.8 million in 2014/15.

The liquidity impact of the changes in working capital was positive at DKK 56.3 million, as against minus DKK 107.6 million in 2013/14. The positive value of DKK 56 million for the year primarily relates to the change in inventories in the Energy Division, which fell by DKK 34 million, as well as the fact that developments in receivables and payables also had a positive effect on the changes in working capital.

KNI has a business strategy to maintain a continuous, close, open and constructive dialogue in every respect with the Company’s bankers. The Company continues to have good financial potential for 2015/16 and the years ahead.

In all, the Company’s credit facilities amounted to DKK 1,100 million as of the balance sheet date, secured via a joint bank agreement between the Group’s financial partners.

The trend in the Company’s current outflow on its credit facilities, measured at the balance sheet date, is shown in the graph below. The graph shows the trend over the past nine years.

DKK mill.

Drawings on credit 1.200,0 1.100,0 1.000,0 900,0 800,0 700,0 600,0 500,0 400,0 300,0 200,0 100,0 0,0

Drawings on credit Credit limit

Accounting year

During the financial year, the Company has been operating in a market which has seen very large fluctuations in the interest rate, currency and commodity markets.

20

The situation requires constant monitoring and close co-operation with the Company’s financial partners in order to hedge the risks to which the Company may be exposed through the market conditions.

Organisational structure

Management For the entire financial year 2014/15, KNI A/S has been administered by managing director Peter Grønvold Samuelsen, who was acting managing director in the period up to 1 June 2014.

The senior management of KNI has otherwise consisted of: Finances: CFO Jan H. Lynge Pedersen – acting CFO in the period up to 1 June 2014.

Goods Division: Chain director Finn Fabricius, Pilersuisoq (from November 2014). Until September 2014 the position was held by Frederik Olsen, after which Finn Fabricius was appointed acting chain director until November 2014.

Energy Division: Energy Director Tage Lindegaard – acting Energy Director in the period up to 1 June 2014.

21

Employees At KNI, we regard our staff as our most important resource. Only through their efforts can we create the quality and efficiency that we seek. Accordingly, we constantly strive to maintain a workforce that can continue to place us among the best. We do this partly through the development and training of our existing employees, but naturally also through new appointments.

Our colleagues and employees are persevering and wish to be treated with dignity and respect. They familiarise themselves with the objectives and values of KNI and work towards a common solution that will best serve the whole.

KNI is represented in 71 different localities in Greenland, and at the end of the financial year 2014/15 the Company had around 912 employees, corresponding to 742 full-time positions.

As of 31 March Number of full-time employees

2011

2012

2013

2014

2015

821

803

800

779

742

Since the end of the last financial year 2013/14, the workforce has fallen by almost 5%, mainly in the Goods Division. The fall in staff numbers over the past five years has mainly occurred in association with adjustments and optimisations in the shops, but there has also been a reduction at head office.

Conditions of employment will alter in accordance with the strategy project “KNI towards 2016� in all parts of the Group, and will not only be focused on the Goods Division. The goal is to optimise customer focus, increase competitiveness and secure earnings on the basis of employee skills, new work behaviour and technology.

Over the past five financial years, KNI has enjoyed very stable staff levels in relation to the number of apprentices and trainees recruited for our shops and service centre. At the end of the financial year 2014/15 the total number of trainees was 53, which is on a par with the previous year.

As of 31 March Number of trainees

2011

2012

2013

2014

2015

56

62

62

53

53

22

KNI is characterised by a very high level of local presence and a good gender balance, as 47% of our employees are women.

KNI is an attractive workplace where skills enhancement for employees enjoys a very high priority.

We expect a lot, but at the same time we focus on the development and well-being of our staff.

Skilled, committed and proud employees are a prerequisite for KNI to perform its tasks well and professionally. The focus is therefore on the internal training of employees, so that their practical skills are supported by both internal and external courses and training.

We offer all of our employees personal and professional development opportunities. We ensure that the individual staff member undergoes a carefully planned development process, focused on securing both the personal and professional ambitions of the employees. This development process applies to our shops, tank installations, slaughterhouse and service centre.

At KNI, training and supplementary training is regarded as an investment. In 2014/15, as previously mentioned under “General remarks”, KNI has launched a comprehensive skills enhancement programme called “Taqqissuut”.

The project aims to develop several types of skills, as it is the combination of these that creates the ideal employee. The relevant skills are divided into the following categories:   

Professional skills Personal skills Social skills

Taqqissuut will thus be the name used to refer to KNI’s skill enhancement project in the coming years. Taqqissuut has connotations of enlightenment, education and increased competency.

In the financial year 2014/15 KNI devoted DKK 8.1 million to training, as against DKK 6.8 million the previous year.

KNI overall - training course spending (DKK mill.)

2014/15 10.000 8.000 6.000 4.000 2.000 Realiseret

2010/11

2011/12

2012/13

2013/14

2014/15

6.617

7.676

4.933

6.800

8.100

23

KNI seeks to ensure that employees and partners have a safe working day, and are in possession of the right equipment, the right training and the knowledge necessary for them to perform their work without risk of injuries or accidents.

KNI wishes to promote awareness and knowledge of diet and healthy lifestyles among its customers, employees and partners. The goal is a healthier life with less illness and improved wellbeing.

At KNI, we continuously strive to create a good working environment in which our employees will thrive and enjoy their work.

Social responsibility With our activities throughout Greenland, we play a central role in society, and consequently, we naturally share a joint responsibility for the development of the country. KNI regards social responsibility as an integrated part of its activities. KNI has the goal of providing the greatest possible contribution to the community, including being able to attract and develop committed employees.

KNI works actively with CSR, including through membership of CSR Greenland – an organisation that works to ensure that corporate social responsibility is coordinated and developed. Here, we focus in particular on providing support for social, cultural and sporting purposes. In a country with limited resources and a challenging infrastructure, it is natural for us to contribute towards the promotion of activities that are important to society, also on a local level.

The KNI spirit is characterised by profound social responsibility and dedication to the fulfilment of its obligation to supply vital service tasks in sparsely-populated localities where there is not otherwise a commercial basis for operating such trading activities throughout the year.

Nevertheless, the spirit of commerce runs through our veins with ever greater force. Security of supply is essential to enable people to have a good life in the country’s villages and small towns.

KNI maintains a constant focus on this responsibility.

It is a myth that public sector (state-owned) enterprises are backward compared to private companies when it comes to service-mindedness, i.e. the mission to put the customer first and in general keep up with global development trends in this area. But it is a hard myth to crack – even when it has no basis whatever in reality.

In KNI, we are very attentive to developing a workplace culture that is based on openness, honesty, business acumen and common sense. Our workplace culture must show respect for Greenlandic culture and society.

KNI and its employees are an important part of the community, and, through their presence, share a joint responsibility for positive development. KNI intends to shoulder its part of this joint social 24

responsibility in co-operation with its stakeholders, including customers, staff, other companies, organisations and the public authorities.

KNI’s values are an integral part of the way we think and carry out our tasks. They are the guiding principles in the way we play our roles; in relation to our tasks in the community, in relation to global trends – of which we are also a part – and in relation to the norms that we are expected to live up to in modern customer relations.

It is important to KNI that a dynamic development is continually taking place in our understanding of our common values, such that these dynamics come to expression in ongoing discussions among employees and managers, throughout the organisation, of how values and principles, as well as profiles and skills, must always reflect the demands necessary to realise KNI’s strategic objectives.

KNI’s values reflect a common foundation and view of humanity that expresses what we prioritise highest in our company and in each other.

At KNI we work, think and live by the following values: Customer-orientation Responsibility Innovation Co-operation

Every year, KNI A/S, Polaroil, Pisisa.gl and Pilersuisoq sponsor a wide range of social, cultural and sporting activities.

This is primarily done through long-term agreements with a number of organisations and institutions that share our values and our vision of being an active player in the development of society.

We currently sponsor:     

Arctic Circle Race Projects for vulnerable children Neriuffik (Cancer Society) Greenland championships in dog sled racing Recent bachelor graduates, Ilimmarfik 25

Besides the above permanent sponsorships, KNI A/S is also included in the list of companies that have signed NANOQ sponsorship agreements with the Arctic Winter Games 2016.

The KNI A/S sponsorship is provided in the form of a cash grant and the loan of an employee for a period of one year, which adds up to a total sponsorship of over DKK 1 million, thereby making KNI A/S a main sponsor of AWG 2016.

As part of KNI's social commitment and social responsibility, we provide ongoing support to humanitarian organisations and activities for vulnerable children. In addition to ‘Grønlandske Børn´ (Greenlandic Children), we also have a partnership agreement with MIO - Meeqqat Inuusuttullu Oqaloqatigiinnittarfiat (the Children’s Rights Institution).

In addition to our standard sponsorships, we also support a number of individual events at national or local level, either in the form of cash donations or products. (Please note! Polaroil does not sponsor with fuel.)

KNI also supports activities in our market area with participation in local events, including as a sponsor.

KNI has drawn up a sponsorship policy that applies to the whole group.

Corporate Governance At the end of 2012, the government of Greenland introduced a catalogue of recommendations on corporate governance, with which KNI, as a publicly-owned company, seeks to comply.

In this context, a self-assessment report has been published on the Company’s website with the following link: www.kni.gl/da/kni/kni-i-dag/retningslinjer-god-selskabsledelse The catalogue consists of 54 specific recommendations, of which KNI now complies with 48. The Management and Board are continuing to work on the remaining recommendations.

26

The management of KNI consists of a Board of Directors and an Executive Board. The Board of Directors consists of nine members, three of whom are employee representatives elected for a period of four years, while the other six stand for election every two years. Three shareholderelected board members thus stand for election each year at the annual general meeting. The six board members elected by the general meeting are independent, corresponding to the recommendation of the “Committee for Good Corporate Governance�.

The Board of Directors is chaired by Niels Thomsen, who is appointed for a period of two years at a time. The board members represent a wide spectrum of experience from Greenlandic, Danish and international business life, and of course Greenlandic society.

The Board has not set up a management committee, but work will be done on this in the financial year 2015/16.

The Board held four ordinary meetings during the financial year. The Board meetings were held either in Greenland or in Denmark.

The Company does not purchase goods or services from board members or their relatives.

Internal controls and business ethics The Company has established a controller function, which is amongst other things intended to reduce losses due to crime committed by employees, customers or others. KNI is at risk as a result of its trading in commodities, including beer, wine and tobacco, and in sales for cash.

KNI undertakes regular internal checks to detect, prevent and reduce fraud. During the financial year, these checks uncovered a small number of cases of fraud by employees, who were subsequently prosecuted.

All employees of KNI have a duty to report any suspected irregularities to the management.

Controllers follow up on all reports and act on their own initiative to uncover possible fraud, including unannounced audit visits and checks of cash holdings in the shops.

Risk management KNI buys oil and oil-based products. Such products are traded at world market prices, which are highly volatile.

In order to guard against the risk of price fluctuations and ensure stable prices for consumers, KNI undertakes hedging of the risk of fluctuations in both oil prices and the currencies used. Prices are secured with a horizon of up to four years.

The Company’s debt financing is largely subject to variable interest rates. To hedge this risk, the Company has taken out hedging contracts that convert floating interest rates to fixed rates. At the conclusion of the financial year, the interest rate risk is fully hedged.

27

The Company's cash resources are assessed to be of a sufficient size to ensure the Company can meet its obligations. Contingency is available in the form of unutilised drawing rights.

To reduce the risk of the collapse of debt financing, KNI makes use of a number of reputable and solid banks and credit institutions in Greenland and abroad. No one bank may provide more than 33% of KNI’s overall loan facilities.

KNI has taken out comprehensive insurance to cover the damages and incidents for which insurance coverage is available. The Company makes use of insurance brokers in the ongoing optimisation of its insurance programme.

The Board and Management are continuously working to identify and hedge business risks. During the financial year, a risk profile has been established that identifies the main risk factors. This profile is used to identify any risks which have a higher probability or more serious potential consequences than are acceptable, for which countermeasures are then instituted.

Developments during the financial year Trends in revenue and profits, etc.

Financial highlights in the Group’s revenue and profit compared to last year (DKK million):

Profit and loss account – Group

2014/15

2013/14

2,452.8

2,393.4

Gross profit

447.6

405.9

Profit before financial items

138.3

82.0

Pre-tax profit

86.1

62.3

Result for the year

58.1

42.3

(DKK mill.)

Revenue

The result from ordinary activities for the Group in 2014/15 is a pre-tax profit of DKK 86.1 million.

The result for the financial year is thus DKK 23.8 million better than the previous year.

The performance improvement is primarily due to the following three factors:   

As expected, positive effects have continued to be realised through the strategy implementation.

Continued significant focus on cost savings and process optimisations.

Reduced operational depreciation.

28

Trend in pre-tax profit – Group

2014/15

2013/14

Energy Division – Polaroil

61.5

54.1

Goods Division – Pilersuisoq

22.2

2.7

Staff – KNI

0.0

4.4

Neqi A/S

0.7

-0.1

Akia Sisimiut A/S

0.6

0.5

KNI Ejendomme A/S

1.1

0.7

86.1

62.3

(DKK mill.)

Pre-tax profit

Pre-tax profit for Polaroil, the Company’s energy division, was DKK 61.5 million for the financial year, as against DKK 54.1 million in the previous year.

The performance improvement is primarily due to the following factors:  

Greater turnover within the service contract, which has marginally exploited the full earnings potential defined within the terms of the contract.

Slightly less activity outside the service contract, but with improved earnings compared to last year.

Counterbalancing the above, the division incurred greater interest expenses than the previous year – corresponding to DKK 7.4 million – due to increased financing costs for the division’s inventories as a result of rising oil prices. A substantial part of these additional costs could however be offset through savings in operating and staff costs and depreciation.

In the Company’s Goods Division, the result of activities was a profit of DKK 22.2 million for the financial year, as against a profit of DKK 2.7 million the previous year. This significant rise in earnings – corresponding to DKK 19.5 million – has been achieved on the basis of the following factors:   

Greater revenue and earnings in wholesale activities.

Significant savings in operating and staff costs.

Lower operational depreciation.

Like the Energy Division, the Goods Division also incurred higher interest expenses than last year, corresponding to DKK 7.1 million. These financing costs, however, were covered by the aforementioned savings in operational and personnel costs and depreciation, with a positive margin as a result.

29

In the Company’s staff functions a zero result was recorded for the financial year, which is in line with expectations, as a positive or negative result will always be channelled into the Company’s business units. Staff Functions have also seen the introduction of efficiency measures, which have resulted in significantly lower costs than in the previous financial year. The use of external consultants has for example been greatly scaled back, with more of the Company’s tasks now being solved by the Company’s own employees.

The consolidated pre-tax profit for the year was DKK 86.1 million, which is regarded as highly satisfactory.

The outlook for the 2015/16 financial year is for a profit of the order of DKK 100 million before tax.

Events following the conclusion of the financial year No events have occurred after the balance sheet date that would influence the evaluation of this annual report

Notes on the parent company’s profit and loss account Goods Division For the Company’s Goods Division, the financial year 2014/15 has been characterised by continued work with analysis, planning and implementation of new strategic initiatives in connection with the strategy project “KNI towards 2016”.

The tasks have inter alia included:    

Inventory optimisation and reductions Efficiency improvements in shop structure Development of the division’s organisational structure Negotiations on service agreements

The division's revenue was realised at DKK 1,231.6 million, which is approximately DKK 80 million higher than last year. The contribution margin on revenue was DKK 289.5 million, as against DKK 299.1 million the previous financial year.

30

Goods Division (DKK mill.)

2014/15

2013/14

Retail revenue, villages

402.7

404.2

Retail revenue, towns

377.5

373.8

Wholesale revenue and online sales

451.4

374.1

Revenue, total

1,231.6

1,152.1

Gross margin

23.5%

26.0%

It is this important to point out that although the contribution margin declined, the strategy work provided the division with further efficiency improvements in the realised contribution margin. The fall in the contribution margin is solely due to the composition of the sales of product types and the effect of the discount policy applied during the financial year.

The realised contribution margin corresponds to a gross margin of 23.5%, compared to 26.0% the previous year.

The result for the year in the Goods Division was a profit of DKK 22.2 million, as against a loss of DKK 2.7 million the previous financial year.

Goods Division overall - pre-tax profit (DKK mill.)

2014/15 30.000 20.000 10.000 -10.000 -20.000 -30.000 Realiseret

2010/11

2011/12

2012/13

2013/14

2014/15

473

-19.923

-12.737

2.677

22.173

In the financial year 2013/14, an extraordinary provision was thus made for obsolescence amounting to DKK 18.0 million. This provision has now been reduced to DKK 5.0 million, which indicates that the division’s clean-up with regard to stocks of obsolete products has made significant progress and is expected to be completed in the coming financial year.

The pro forma cash flow for the year in the Goods Division can be seen in the table below. It is important to note that the cash flow statement is based on a number of assumptions, the most important of which are that working capital (receivables, payables, inventory levels, etc.) remain 31

unchanged over time, that the Energy Division will be burdened with dividend payments, and that corporate tax falls due for payment immediately.

Goods Division (DKK mill.)

Cash flows from operations Cash flows from investment activities Cash flows from financing Corrections: Deferred taxes Alterations in liquid funds

2014/15

2013/14

51.4 -13.5 -

43.7 -22.2 -

37.9

-0.9 20.6

KNI has entered into a service contract with the government of Greenland to operate shops in villages, outlying districts and smaller towns. Payment for this service contract during the financial year amounted to DKK 36 million, which is on a par with the previous financial year.

Total staff costs for the year were DKK 156.5 million, as against DKK 164.3 million the previous year – a drop of 4.8%, mainly due to efficiency improvements in processes under the ongoing strategy work.

During the financial year, highly structured and focused work was continued in order to realise the optimisation potential offered by the implementation of the strategy project. One of the areas that has been given considerable attention is the introduction of category management. The process, now in its final stage in relation to implementation, has created new processes and better organisation of business procedures between purchasing and sales.

In addition, the introduction of category management has reduced overall product numbers and created the potential for significantly lower reject rates than before. This has also brought about a better optimisation of inventory management, which will be crucial in future in order to secure a good and stable revenue base in the Goods Division.

Intensive work has also been done to create greater transparency in reporting, including introducing some common management tools for sales managers and shop managers. This project has been completed, and there are great expectations towards its potential, as a central, common foundation has now been established for financial monitoring and management.

During the financial year, an ambitious project was also launched in the Goods Division to analyse the resources required for the division to plan and remedy the current backlog in renovation work in the division’s properties and warehouses.

The Goods Division’s building stock amounts to more than 400 buildings, many of which are rundown and outdated in relation to retail and warehouse operations. There is a considerable 32

renovation backlog for the buildings, which KNI’s consultant has estimated at DKK 470 million at the end of 2014.

DKK 25 million is currently allocated each year for investments in the Goods Division. In order to maintain the buildings at their current level, DKK 47 million will be required annually for investments alone. The renovation backlog is in other words increasing year by year.

This backlog could be reduced by deactivating buildings that are not in use. The most suitable of these will be put up for sale by public tender during 2015. Those buildings that are not or cannot be sold will be deactivated by other means so they do not burden KNI with ongoing operating costs.

The building stock can be further reduced by working to achieve a more appropriate structure. In some villages, storage facilities are located in several buildings which could be advantageously combined into a single warehouse with lower maintenance and operating costs.

Through the above initiatives, the renovation backlog could be reduced to around DKK 300 million.

In order to maintain the buildings at their current level, DKK 41 million will be required annually for investments.

Normally, this could be financed by taking out loans from banks and/or mortgage-credit institutions. However, as KNI primarily operates outside those towns where there is access to mortgage financing, the Company must itself provide the funding through earnings in the Goods Division.

This places a natural limit on the rate at which new construction can take place.

The pace of reduction of the renovation backlog will also depend on the owners’ expectations towards how the earnings of the Goods Division should be applied. Slightly simplified, the desire for a high pace of reduction of the renovation backlog is in contradiction with the owners’ simultaneous desire for dividends and debt reduction.

In addition, it is remarked that, all else being equal, reduction of the renovation backlog will ultimately increase costs in the Goods Division going forward, as depreciation will increase more than the operating savings that can be achieved through, for example, the introduction of energyefficient solutions. This will put further pressure on the earnings of the Goods Division in the long term.

Finally, new investments are being undertaken with a long-term aim. The average depreciation of buildings in KNI is 35 years, so it must be ensured that the owner agrees to a programme of new investment – also in villages undergoing continuous depopulation. Under the framework agreement between the government of Greenland and KNI, the government is obliged to cover KNI’s net deactivation costs in an area if the government does not renew a service contract in the area.

33

A final renovation plan will depend on a common understanding with the owners regarding the overall requirements for the Company’s debt development and dividend policy, and a guarantee that the necessary earnings will also be present in the long term.

Energy Division Revenue in the Energy Division for the financial year 2014/15 was DKK 1,201 million, compared to DKK 1,208 million the previous year – a drop of DKK 7 million, corresponding to 0.6%. The contribution margin on revenue was DKK 179 million, as against DKK 158 million last year.

Energy Division (DKK mill.)

Sales of liquid fuels – mill. litres Revenue, sales of liquid fuels – DKK mill.

Revenue, other energy products – DKK mill.

Import of liquid fuels – mill. litres Gross margin

2014/15

2013/14

210.3

219.0

1,213.4

1,191.0

24.3

27.5

198.9

231.5

14.9%

13.1%

The improved contribution margin, corresponding to DKK 21 million, should however be viewed in conjunction with the fact that last year’s result included a financial income of DKK 15 million relating to product hedges which was allocated under financial items, but which was in fact directly related to contribution margin earnings.

Thus, adjusted for the aforementioned financial revenue, the contribution margin has increased by around DKK 6 million, which is attributable to improved earnings on activities, both within and outside the service contract.

The realised contribution margin corresponds to a gross margin of 14.9%, compared to 13.1% the previous year.

The result for the year in the Energy Division was a profit of DKK 61.5 million, as against DKK 54.1 million the previous financial year.

34

Energy Division overall - pre-tax profit (DKK mill.)

2014/15 100.000 80.000 60.000 40.000 20.000 Realiseret

2010/11

2011/12

2012/13

2013/14

2014/15

63.806

79.693

73.128

54.144

61.456

The pro forma cash flow for the year in the Energy Division can be seen in the table below. It is important to note that the cash flow statement is based on a number of assumptions, the most important of which are that working capital (receivables, payables, inventory levels, etc.) remain unchanged over time, that the Energy Division will be burdened with dividend payments, and that corporate tax falls due for payment immediately.

Energy Division (DKK mill.)

Cash flows from operations Cash flows from investment activities Cash flows from financing Corrections: Deferred taxes Alterations in liquid funds

2014/15

2013/14

73.4 -43.3 -30.0

74.3 -41.0 -20.0

0.1

-15.5 -2.2

A service contract has been entered into with the government of Greenland for the period 20122016, inclusive. The division does not receive payment for the service contract, and the earnings of the division under the service contract are subject to a maximum limit.

On the basis of the agreed level of income, the division must allocate the necessary resources for the renovation and maintenance tasks that are necessary to maintain the Energy Division’s production apparatus in a responsible condition with regard to production and safety. A comprehensive renovation plan has been drawn up which will involve investments of approximately DKK 240 million over the next 10 years.

As a consequence of the very large investment requirements in the division, the current annual estimated cash flow – during the period of the service contract – will be largely neutral when tax and dividend payments have been calculated.

35

Overall consumer prices were adjusted twice during the period; on 1 August 2014 a price rise of DKK 0.54 per litre was introduced, while on 1 December a reduction in prices was undertaken corresponding to DKK 0.26 per litre.

Continuous efforts are made to undertake the necessary product and currency hedges to keep the prices of petroleum products stable in Greenland.

The Energy Division possesses a total of 451 tanks for liquid fuels: 176 tanks in the towns, and 275 tanks in the villages. The capacity of the village tanks is 21 million litres of fuel, and in the towns 260 million litres. The total tank capacity is 281 million litres.

The division's challenges remain:   

Increasing and maintaining sales revenue Correct positioning in relation to oil and mineral exploration activities Increasing environmental requirements, with greater demands towards employee skills and the physical installations

Notes on the parent company’s balance sheet Intangible fixed assets As of the balance sheet date, intangible assets amounted to DKK 45.6 million, as against DKK 55.5 million in the financial year 2013/14. Investments worth DKK 2.3 million have been undertaken in the financial year, compared to the previous year’s DKK 8.8 million.

Property, plant and equipment As of the balance sheet date, property, plant and equipment amounted to DKK 739.9 million, as against DKK 731.1 million in the financial year 2013/14. Investments worth DKK 66.3 million have been undertaken in the financial year, compared to the previous year’s DKK 70.8 million.

Financial fixed assets Investments in affiliated undertakings consist of:   

DKK 4.4 million in Neqi A/S DKK 4.3 million in Akia Sisimiut A/S DKK 1.2 million in KNI Ejendomme A/S

36

Investments in associated undertakings consist of: 

DKK 0.1 million in Pitsaasut ApS

Financial fixed assets rose during the year from DKK 8.9 million to DKK 10.5 million. The increase is solely attributable to the profit share in the subsidiaries and the influx of paid-in deposits.

Inventories At year-end, inventories amounted to DKK 899.8 million, as against DKK 929.1 million last year; a fall of DKK 29.3 million, or approximately 3.2%.

This fall is primarily attributable to inventories in the Energy Division, which decreased by DKK 34.4 million.

In the Goods Division inventories are at the same level as last year, having increased only marginally by DKK 4.3 million. The fall in inventories in the Energy Division is mainly due to changes in volume.

The composition of the inventories can be seen in the table below:

Inventories (DKK mill.)

2014/15

2013/14

Goods Division

473.5

469.2

Energy Division

423.4

457.8

2.9

2.1

Consumer goods Total

899.8

929.1

Equity The Company’s equity fell from DKK 904.8 million as of 31 March 2014 to DKK 891.3 million as of 31 March 2015 – an overall drop of DKK 13.5 million.

37

KNI overall - equity (DKK mill.)

2014/15 960.000 940.000 920.000 900.000 880.000 860.000 840.000 820.000 800.000 Realiseret

2010/11

2011/12

2012/13

2013/14

2014/15

857.700

920.000

937.200

904.900

891.300

The change in equity is composed of the value of retained earnings for the period and changes in the market value of financial instruments, after deduction of deferred tax.

The market value of the financial instruments fell by DKK 89.8 million in the period from 31 March 2014 to 31 March 2015. The value at the end of the financial year 2014/15 was negative by DKK 189.1 million, compared to a negative value of DKK 99.3 million at the end of the financial year 2013/14.

The financial instruments are established by entering into a number of product and currency hedges on an ongoing basis, with the aim of ensuring stable consumer prices for liquid fuels. The market value of these hedges is calculated on the balance sheet date and is recognised directly in equity.

The Company also enters into interest rate hedging contracts to protect it against unfavourable fluctuations in market interest rates.

The market value of these hedges is calculated on the balance sheet date and is also directly recognised in equity, to the extent that the hedges are assessed to be effective in relation to the Company’s exposure.

The negative market value of the financial instruments has also had a strong negative impact on the Company’s solvency ratio. On page 9 in the statement of key figures, it may be seen that the solvency ratio – including the value of the negative market values – comprises 38.8%.

If the same calculation is made, but excluding the negative market values of all positions prior to 1 January 2017 (until the end of the current service contract), the solvency ratio is 51.8%.

38

KNI overall – solvency ratio (%) 2014/15

It is important to stress in this connection that the negative market values of product and currency hedges can never have a negative impact on the Company’s financial situation, as these values will always be implicitly recognised in consumer prices.

Outlook for KNI A/S In 2013, KNI launched a strategy entitled “KNI towards 2016”. The aim was to provide a clear answer to the challenges that KNI was facing in the individual business areas, and subsequently, through the implementation of various strategic initiatives, to create an economic development that in terms of profit would meet the stricter requirements imposed by the owners, as expressed in extension of the government of Greenland’s “Report on the Ownership and Development of the Fully or Partially State-owned Companies” from 2011.

The strategy period is now nearing completion, with the financial year 2015/16 being the final year included in the current strategic plan. On the basis of the already implemented strategic measures and their economic results, the financial year 2015/16 will in terms of expectations resemble the year that has just ended.

At an overall level, expectations towards the coming financial year 2015/16 are that KNI will once again deliver a result which in terms of profits will be in line with the ambitions outlined in the strategic material “KNI towards 2016”, i.e. a continuing positive development in pre-tax profit, including return on equity and solvency ratio. The development in return on equity and solvency ratio will be based on their values, excluding developments in the market values of financial instruments.

KNI A/S thus does not anticipate any major changes in its activities during the financial year 2015/16, for which reason the Company, on the basis of its strategy, expects to earn a pre-tax profit in the next financial period of around DKK 100 million.

In relation to the strategy, work is still being done to fulfil the ambition expressed in the vision: 39

“KNI wishes to be a dynamic and profitable company that understands its customers and their needs”.

Goods Division The primary focus in the Goods Division is on increasing earnings in both the wholesale and retail sectors. These earnings must ensure that the demands of the owners can be met, but must also create some leeway, so that the Goods Division can remedy the renovation backlog in the division’s capital assets.

During the financial year, the division will also maintain its focus on optimising its organisation and business processes, as these are essential in relation to securing stability in daily operations, and thereby contribute to maintaining the crucial focus on customers and the creation of earnings.

In KNI Engros, the focus in the coming year will be on creating even more customer relations and thereby optimising sales and earnings to the benefit of the division’s overall result.

In retail, the continued focus will also be on strengthening earnings, through four main overall tracks:    

Reducing the number of suppliers, which will give the remaining suppliers increased volume and thereby the possibility of offering KNI better terms Strengthening the earnings of individual products by restructuring goods that are loss-making or which make too small a contribution to earnings Reducing inventories and thereby freeing up liquidity by strengthening the purchasing function, so that neither too much nor too little is purchased Sharpening the focus of shop managers on sales and cost control in the shops.

The overall financial goal of these measures in the wholesale and retail sectors is to boost earnings in the Goods Division by around DKK 50 million. This is expected to be achieved within the next three financial years, i.e. with full effect in the financial year 2017/18.

The Goods Division will continue to face major challenges in the coming years. The division will be able to improve its earnings up to 2018, but will then undergo a development in which earnings will be eroded. If we delve further into the figures a two-sided development is revealed, in which the division’s commercial arm will maintain stable earnings, while the part of the division encompassed by the service contract will quickly lose revenue. The explanation for this includes the urbanisation trend, which over the next ten years is expected to continue at the same rate as in the past decade.

The Goods Division has three challenges which must be addressed in the service contract going forward: 

Firstly, it is recommended that a mechanism be included in the service contract which can offset the negative impact of urbanisation.

40





Secondly, it is important to recognise that urbanisation will intensify the dependence of the service contract area on earnings in the commercial part of the Goods Division. This is a fragile foundation on which to base the business, as the development potential of the commercial part of the Goods Division is limited and under sustained pressure. This indicates that the service contract area should be organised independently of the commercial part of the Goods Division.

Thirdly, as in the Energy Division, it must be recognised that there is a significant renovation backlog and that a time frame must be agreed for handling this.

On the basis of the above challenges, intensive work must at the same time be done to improve the internal lines, including education, training, securing better purchasing terms from suppliers, and cost management, which is an implicit part of the strategy project.

Energy Division The Energy Division’s service contract is formulated to take into account the fact that the division has a renovation backlog that must be addressed in the period until 2024. This goal will be met by defining a surplus target in the service contract and determining the share of the profits to be used to alleviate the renovation backlog.

On this basis, there will be no need for significant conceptual amendments to the contract when it is renewed after 2016.

There is no expectation of significant earnings changes for the Energy Division in either an upward or a downward direction. The recently-started ruby mine project has only marginal fuel needs, and in the short term there are no immediate prospects of a significant change in activity level in either the fishing or the mining sector.

Growth in Polaroil depends very much on the progress of activities outside the service contract – primarily in the area of oil and mineral exploration. The business unit is working on securing longterm contacts with possible future players, but no increase in activity is currently expected in this area in the coming years. In that part of the business that is operated within the service contract, and in other trading at market rates, a relatively stable development is expected.

Neqi The Neqi slaughterhouse delivered a satisfactory result in the financial year 2014/15, but the company faces significant challenges in relation to its ability to create efficient operations and correspondingly satisfactory earnings.

A process is currently taking place in co-operation with the Ministry of Industry, Labour and Trade in which the short and long term operations of the Neqi slaughterhouse have been jointly mapped out – particularly in the light of the expiry of the current service contract at the end of 2015.

Besides service contract payments, the slaughterhouse must also make considerably better use of its capacity in future to improve earnings. The slaughterhouse has the capacity to process far more animals than are slaughtered at the present time, and it is evident that many more animals must be processed to make it economically viable.

41

Significant development is therefore necessary in the agricultural industry. However, irrespective of whether the political will to do so exists, it is recognised that it will require efforts extending over many years to increase annual production by, for example, approximately 10,000 lambs/sheep.

Accordingly, in the transition years – until the domestic industry can provide the necessary supply of animals for slaughter – carcasses will need to be imported, such as whole lamb from Iceland or New Zealand, in order to better utilise the capacity.

42

Accounting principles applied The annual report for the KNI group is presented in conformity with the provisions of the Financial Statements Act for class D companies.

The annual report is presented in accordance with the same accounting policies as last year.

A reclassification has taken place during the year of software from tangible to intangible assets. The reclassification does not affect the profit and loss account or equity. The comparative figures, financial highlights and key figures have been adapted accordingly.

General remarks on inclusion and valuation Assets are recognised in the balance sheet when, as the result of a past event, it is likely that future financial advantages will accrue to the group, and when the value of the assets can be reliably measured.

Liabilities have been recognised in the balance sheet when the Group, as the result of a past event, has acquired a legal or constructive obligation, and it is probable that future financial benefits will be deducted from the Group, and the value of the liability can be reliably measured.

On initial recognition, assets and liabilities are valued at cost price. Subsequently, assets and liabilities are valued as described below for each item of the accounts.

In recognition and measurement, account is taken of predictable losses and risks that arise before the presentation of the report and which confirm or deny conditions that existed at the balance sheet date.

In the profit and loss account, revenues are recognised as they are earned, while costs are recognised at the amounts relating to the financial year.

Consolidated accounts The consolidated group accounts encompass KNI A/S (the parent company) and those companies (affiliated undertakings) that are controlled by the parent company.

Such control is achieved when the parent company directly or indirectly possesses more than 50% of the voting rights, or in any other manner can exercise or actually exercises a controlling influence. Companies in which the Group directly or indirectly possesses between 20% and 50% of the voting rights and exercises significant influence, but not control, are regarded as associated companies.

43

Principles of consolidation The consolidated financial statements are prepared on the basis of the financial statements of KNI A/S and its subsidiaries. The consolidated statements are prepared by combining entries of a uniform nature. On consolidation, intra-group income and expenses, internal accounts, and gains and losses on transactions between the consolidated companies are eliminated. The accounts used for consolidation are prepared in accordance with the Group's accounting policies.

Capital interests in subsidiaries are offset against the proportionate share of the subsidiaries’ net assets at the acquisition date, calculated at market value.

Minority interests The entries of the subsidiaries are recognised at 100% in the consolidated accounts.

The share of the subsidiaries’ annual profit/loss and equity attributable to minority interests is recognised under separate items in the profit and loss account and balance sheet.

Conversion of foreign currencies Transactions conducted in foreign currencies have been calculated on first recognition according to the rate on the date of the transaction. Receivables, liabilities other than provisions and other monetary entries in foreign currency which are not settled on the balance sheet date are converted at the exchange rate of the balance sheet date. Any exchange rate differences occurring between the exchange rate prevailing on the transaction day and the rate prevailing on the balance sheet date are recognised in the profit and loss accounts as financial items. Tangible and intangible fixed assets, inventories and other non-monetary assets acquired in foreign currencies are converted at historic rates.

Derivatives Derivative financial instruments are initially recognised in the balance sheet at cost price, and subsequently at market value. Derivatives are recognised under Other receivables and Other debt, respectively.

Alterations in the market value of derivatives that are designated and qualify as hedges of future transactions are recognised directly in equity. When the hedged transactions are realised, the cumulative alterations are recognised as part of the cost price of the relevant entries.

Alterations in the market value of derivative financial instruments that do not qualify as hedging instruments are recognised on an ongoing basis in the profit and loss account as financial items.

44

Profit and loss account Net revenue Net revenue comprises net cash and invoiced sales for the year, less returns and discounts directly related to sales.

Payments from the government of Greenland for community tasks are recognised as income at the amount approved in the national budget.

Other operating income and operating costs Other operating income and operating costs encompass income and costs of a secondary character in relation to the Group's main activities.

Other external costs Other external costs encompass costs relating to distribution, sales, advertising, administration, premises, bad debts, etc.

Staff costs Staff costs encompass wages and salaries as well as social costs, pensions, etc., for the Group’s personnel.

Financial items Financial items include interest income and expenses, realised and unrealised gains and losses on securities, payables and transactions denominated in foreign currencies.

Tax The tax for the year, which consists of the current tax for the year and any changes in the deferred tax, is recognise in the profit and loss account in the proportion attributable to the net profit for the year, and directly in equity capital in the proportion attributable to entries recognised directly in equity.

In Greenland, dividends are tax-deductible. The taxable value of the allocated dividend in the annual report is therefore recognised directly in equity, in accordance with the above.

Current tax liabilities and tax receivables are recognised in the balance sheet as the calculated tax on the year’s taxable income.

45

Deferred tax is recognised on all temporary differences between accounting and tax values of assets and liabilities, where the tax value of the assets is calculated on the basis of the planned use of the individual asset.

Deferred tax assets, including the tax value of tax losses allowed for carry-forward, are recognised at the value at which the asset is expected to be realised, either by offsetting in deferred tax liabilities or as net tax assets.

Balance sheet Intangible fixed assets Software is valued at cost price after deduction of accumulated depreciation and write-downs.

The cost price comprises the price of acquisition and expenses directly attributable to the acquisition, plus the preparation costs for the asset until such time as the asset is ready to be placed in service.

The depreciation is based on the cost price, amortised linearly over an estimated useful life of from three to ten years.

Intangible assets are written down to the recoverable amount, if this is lower than the book value.

Property, plant and equipment Land and buildings, production equipment and machinery, as well as other plant, operating fittings and fixtures, are measured at cost price less accumulated depreciation and impairment. Land is not depreciated.

The cost price comprises the price of acquisition and expenses directly attributable to the acquisition, plus the preparation costs for the asset until such time as the asset is ready to be placed in service.

The basis of depreciation is the cost price less the estimated residual value at the end of its useful life. Linear depreciation is conducted, based on the following assessment of the estimated useful lives of the assets: Buildings Plant and machinery Other infrastructure, operating plant and fixtures

20-50 years 10-40 years 3-10 years

Tangible fixed assets are written down to the recoverable amount, if this is lower than the book value.

46

Gains and losses on disposal of property, plant and equipment is calculated as the difference between the sales price minus sales costs and the book value at the time of sale.

Gains or losses are recognised in the profit and loss account as an adjustment of depreciation and impairment, or under other operating income if the sales price exceeds the original cost.

Capital interests in subsidiaries and associated companies Capital interests in subsidiaries and associates are recognised and valued under the equity method, which implies that capital interests are valued at the proportionate share of the companies’ book equity value, plus or minus unamortised positive or negative group goodwill, plus or minus unrealised intra-group profits and losses.

In the profit and loss account, the parent company’s share of the companies’ results is recognised after the elimination of unrealised intra-group profits and losses, plus or minus the amortisation of positive or negative Group goodwill.

Subsidiaries and associates with negative book equity value are valued at zero, and any receivables from these enterprises are written down by the parent company’s share of the negative equity, to the extent that they are assessed to be irrecoverable. If the negative equity exceeds the amount owed, the remaining amount is recognised under provisions to the extent that the parent has a legal or constructive obligation to cover the liabilities of the company in question.

The net revaluation of capital interests in subsidiaries and associates is transferred to the revaluation reserve for capital interests, to the extent that the book value exceeds the cost price.

Inventories Inventories are valued at cost price using the FIFO method, or at the net realisable value, if this is lower. The cost price of commodities, raw materials and consumables comprises the purchase price plus transportation costs. The cost price of finished goods and work in progress comprises the cost of raw materials, consumables, direct wages and indirect production costs.

Indirect production costs comprise indirect materials and wages, maintenance and depreciation costs for production machinery, factory buildings and equipment, plus costs for factory management and administration. Financing costs are not included in the cost price.

The net realisable value of inventories is calculated as the anticipated sales price, less completion costs and sales expenses.

Receivables Receivables are assessed at the amortised cost price, which usually corresponds to the nominal value, less write-downs to counter expected losses.

47

Prepayments Prepayments recognised under assets include costs incurred for subsequent financial years.

Prepayments are valued at cost price.

Equity Dividends are recognised as a liability at the time of adoption by the general meeting. The proposed dividend for the financial year is shown as a separate item under equity.

Mortgage debt Mortgage debt is valued at the time of borrowing at cost price, corresponding to the proceeds received after deduction of transaction costs.

Mortgage debt is subsequently valued at amortised cost price. This means that the difference between the proceeds and the nominal amount to be repaid is recognised in the profit and loss account over the term of the loan as a financial expense, using the effective interest method.

Other financial liabilities Other financial liabilities are valued at amortised cost price, which usually corresponds to the nominal value.

Prepayments Prepayments recognised under liabilities include earnings received for recognition in the subsequent financial year. Prepayments are valued at cost price.

Cash flow statement The cash flow statement is presented on the basis of the indirect method, and indicates cash flows associated with operations, investments and financing, as well as liquid funds at the beginning and end of the year.

Cash flows from operations are calculated as operating profit for the year adjusted for non-cash operating items, changes in working capital and paid corporate tax.

Cash flows relating to investment activities encompass outgoing payments in connection with the purchase and sale of companies, activities and financial assets, as well as the purchase, development, improvement and sale, etc., of intangible and tangible assets, including acquisition of assets under finance leases.

Cash flows relating to financial activities encompass alterations in the size or composition of the Group’s share capital and associated costs, as well as the raising of loans, entering into financial 48

leasing agreements, instalments on interest-bearing debt, acquisition of own shares and the payment of dividends.

Cash and cash equivalents include cash at bank and in hand and short-term securities with insignificant price risk, less short-term bank debt.

Segment information Information is provided on business segments. The segment information accords with the Group’s accounting policies, risks and internal financial management. Fixed assets in the segments comprise assets used directly in the operation of each segment, including intangible assets, property, plant and equipment, and capital interests in associates. Segment liabilities include debt liabilities and other provisions that are derived from the operation of each segment, including trade payables and other debt. Deferred tax is not included in segment liabilities.

Financial highlights and key figures The financial highlights and key figures have been calculated in conformity with the ‘Recommendations and Financial Ratios 2010’ of the Danish Society of Financial Analysts.

EBIT margin (%)

=

EBIT x 100 Net revenue

Return on invested capital including goodwill (%)

=

EBITA x 100 Invested capital incl. goodwill

Net revenue / Invested capital including goodwill

=

Net revenue Invested capital incl. goodwill

Financial gearing

=

Net interest-bearing debt Equity

Return on equity capital (%)

=

Result for the year x 100 Equity

Solvency ratio (%)

=

Equity x 100 Total assets

49

Income statement 1. april 2014 - 31. marts 2015 Parent Company Note

Group

2015

2014

2015

2014

(tkr.)

(tkr.)

(tkr.)

(tkr.)

Net revenues

1

2.432.736

2.360.470

2.452.801

2.393.417

Income from the Governments payment for service contract Other operating income Consumables Other external costs

21 2

36.000 89.264 (1.964.058) (164.031)

36.000 81.887 (1.902.974) (187.208)

42.750 88.946 (1.973.385) (163.495)

43.000 81.632 (1.923.851) (188.335)

429.911

388.174

447.617

405.864

4 9,10

(230.840) (66.785) 132.286

(237.055) (74.320) 76.799

(237.850) (71.497) 138.271

(246.059) (77.847) 81.956

5 6 7

1.570 2.704 (51.360)

821 20.112 (35.713)

1.455 (53.622)

18.310 (38.006)

85.200

62.019

86.104

62.260

(27.094)

(19.722)

(27.906)

(19.886)

58.106

42.297

58.198

42.374

-

-

(92)

(77)

Earnings for the year

58.106

42.297

58.106

42.297

Proposed distribution of earnings Proposed dividends for the financial year Provision for reserve for net revaluation under the equity method Retained earnings Total

30.000 1.623 26.483 58.106

20.000 821 21.476 42.297

30.000 28.106 58.106

20.000 22.297 42.297

3

Gross earnings Costs of employment Depreciation and write-down Earnings before financials Results of affiliates Financial income Financial expenses Pre-tax earnings for the year Tax on earnings for the year After-tax earnings for the year Minority interests 'share of associated companies' profit after tax

8

50

Balance Sheet 31. marts 2015 Parent Company

Group

Assets Note

Software Intangible fixed assets

2015

2014

2015

2014

(tkr.)

(tkr.)

(tkr.)

(tkr.)

9

45.657 45.657

55.523 55.523

45.657 45.657

55.523 55.523

10

317.849 297.414 80.245 44.349 739.858

327.402 212.152 90.458 101.067 731.079

458.749 300.384 84.498 44.401 888.032

474.800 215.516 94.462 101.506 886.284

11

9.913 40 573 10.525

8.342 40 540 8.922

40 573 612

40 540 580

Total fixed assets

796.039

795.524

934.301

942.387

Consumables Raw materials and consumables Retail/wholesale goods Liquid fuels etc Inventories

2.890 0 473.498 423.368 899.755

2.113 0 469.215 457.755 929.084

2.890 12.500 472.880 423.368 911.637

2.113 14.918 468.669 457.755 943.456

Receivables from sales and services Receivables from affiliated companies Deferred tax asset Product hedging Forward contracts USD Other accounts receivable Accruals Receivables

74.667 3.428 5.727 0 301.792 11.078 18.194 414.886

79.570 14.336 0 15.702 0 16.175 14.829 140.612

76.705 9.857 0 301.792 12.297 18.213 418.864

82.236 4.582 15.702 0 17.362 14.907 134.789

26.328

29.618

31.852

40.878

Total current assets

1.340.969

1.099.314

1.362.353

1.119.123

Total assets

2.137.008

1.894.838

2.296.654

2.061.509

Property Plant and machinery Other fixtures and fittings Tangible fixed assets under construction Tangible fixed assets Holdings in affiliates Holdings in associated company Deposits Financial fixed assets

Cash and cash equivalents

14

51

Balance Sheet 31. marts 2015 Parent Company

Group

Liabilities Note

Share capital Reserve for net revaluation under the equity method Special reserve Retained profit Proposed dividends for the financial year Total equity

12

13

Total minority interests Provision for deferred tax Total provisions

2015

2014

2015

2014

(tkr.)

(tkr.)

(tkr.)

(tkr.)

310.000 5.838 283.163 262.253 30.000 891.254 -

-

310.000

310.000 -

-

283.163 268.092 30.000 891.254

283.163 291.682 20.000 904.845

905

814

0 0

19.098 19.098

1.130 1.130

19.867 19.867

0 611.772 611.772

0 223.999 223.999

70.109 611.772 681.880

72.539 223.999 296.539

0 0 75.883 0 12.119 44.135 91.409 399.518 0 10.917 633.981

8.167 488.631 74.427 0 6.701 32.491 75.555 0 59.463 1.460 746.895

1.863 74.507 76.626 16 12.119 45.869 91.409 399.518 0 19.558 721.484

9.972 562.856 75.553 0 6.701 35.637 75.555 0 59.463 13.708 839.444

Total current liabilities

1.245.753

970.894

1.403.364

1.135.983

Total liabilities

2.137.008

1.894.838

2.296.654

2.061.509

Mortgages Other credit institutions Long-term debt Short-term part of long-term debt Credit institutions Suppliers of goods and services Prepayments from customers Company tax Other debt Interest hedging Product hedging Forward contracts USD Accruals Short term debt

Contingent / guarantees Fee to the General Assembly elected auditor Derivative financial instruments Related party transactions and ownership Business Management Distribution of service contract

14

310.000 4.215 283.163 287.467 20.000 904.845

15

16

17 18 13 19 20 21

52

Equity 31 March 2013

Share capital

Reserve for net revaluation under the equity method

Retained profit

Special reserve

Proposed dividends for the financial year

Total

Equity statement for the parent company

(tkr.)

(tkr.)

(tkr.)

(tkr.)

(tkr.)

(tkr.)

310.000

3.394

320.610

283.163

20.000

937.167

0 0 0 0 0

821 0 0 0 0

21.476 0 0 6.360 (60.978)

0 0 0 0 0

0 20.000 (20.000) 0 0

22.297 20.000 (20.000) 6.360 (60.978)

310.000

4.215

287.467

283.163

20.000

904.845

0 0 0 0 0

1.623 0 0 0 0

26.483 0 0 9.540 (61.237)

0 0 0 0 0

0 30.000 (20.000) 0 0

28.106 30.000 (20.000) 9.540 (61.237)

310.000

5.838

262.253

283.163

30.000

891.254

After-tax earnings for the year Proposed dividends for the financial year Dividends paid Tax value of dividends Adjustments - derivatives Equity 31 March 2014 After-tax earnings for the year Proposed dividends for the financial year Dividends paid Tax value of dividends Adjustments - derivatives Equity 31 March 2015

Equity 31 March 2013 After-tax earnings for the year Proposed dividends for the financial year Dividends paid Tax value of dividends Adjustments - derivatives Equity 31 March 2014 After-tax earnings for the year Proposed dividends for the financial year Dividends paid Tax value of dividends Adjustments - derivatives Equity 31 March 2015

Share capital

Reserve for net revaluation under the equity method

Retained profit

Special reserve

Proposed dividends for the financial year

Total

Equity statement for the group

(tkr.)

(tkr.)

(tkr.)

(tkr.)

(tkr.)

(tkr.)

310.000

0

324.004

283.163

20.000

937.167

0 0 0 0 0

0 0 0 0 0

22.297 0 0 6.360 (60.978)

0 0 0 0 0

0 20.000 (20.000) 0 0

22.297 20.000 (20.000) 6.360 (60.978)

310.000

0

291.682

283.163

20.000

904.845

0 0 0 0 0

0 0 0 0 0

28.106 0 0 9.540 (61.237)

0 0 0 0 0

0 30.000 (20.000) 0 0

28.106 30.000 (20.000) 9.540 (61.237)

310.000

0

268.092

283.163

30.000

891.254

53

Cash flow statement for the group 1. april 2014 - 31. marts 2015

Note

Earnings before financials Depreciation and write-down Minority interests

2015

2014

(tkr.)

(tkr.)

138.271 71.497 (92)

81.956 77.847 (77)

56.281 265.957

(107.581) 52.145

Interest income and similar income Interest expenses and similar income Interest hedging Product hedgings Company tax Cash flows from operating activities

1.455 (26.863) (26.759) (19.970) (8.408) 185.412

18.310 (25.009) (14.474) 19.970 (694) 50.248

Acquision of property, plant and equipment Sale of property, plant and equipment

(69.782) 6.493

(108.620) 1.250

(33)

0

Cash flows from investing activities

(63.323)

(107.370)

Dividends paid Instalments on long-term liabilities other than provisions Cash flows from financing activities

(20.000) (2.372) (22.372)

(20.000) 24.158 4.158

Increase/decrease in cash and cash equivalents

99.718

(52.963)

(754.144) (654.427)

(701.181) (754.144)

31.819 7.751 16.711 56.281

(89.322) (9.502) (8.757) (107.581)

31.852 (686.279) (654.427)

40.878 (795.022) (754.144)

Working capital changes Cash flows from ordinary operating activities

Lending, fixed asset investments

Cash funds primo Cash funds ultimo

1

Notes to the cash flow statement Note 1: Working capital changes Change in inventories Change in receivables Change in trade payables and other payables, etc

Cash funds ultimo Cash funds ultimo Credit institutions

54

Notes Parent Company

Group

2015

2014

2015

2014

(tkr.)

(tkr.)

(tkr.)

(tkr.)

1 Net revenues Goods Liquid fuels etc Pisisa Neqi Rental income

1.228.427 1.201.088 3.221 0 0

1.148.060 1.208.351 4.058 0 0

1.228.427 1.201.088 3.221 19.661 404

1.148.060 1.208.351 4.058 32.543 403

2.432.736

2.360.470

2.452.801

2.393.417

24.447 28.568 18.125 4.447 250 13.427

24.345 27.507 16.129 2.183 350 11.373

24.447 28.609 18.125 4.447 0 13.317

24.345 27.552 16.129 2.183 0 11.423

89.264

81.887

88.946

81.632

8.785 8.108 10.515 10.242 7.763 23.064 4.023 57.302 18.273 13.986 1.970

14.948 4.365 11.983 12.775 8.514 35.128 4.661 55.465 22.604 14.938 1.826

9.056 8.108 10.545 10.359 7.942 23.788 4.055 60.455 19.324 7.883 1.979

15.788 4.365 11.998 12.901 8.679 36.733 4.682 58.913 23.355 9.094 1.827

164.031

187.208

163.495

188.335

206.309 14.342 10.189 230.840

211.784 14.316 10.955 237.055

212.761 14.789 10.299 237.850

219.935 14.841 11.284 246.059

KNI A/S only operates in a single geographic market

2 Other operating income Service contracts Rental income Fee income Rental of equipment Group contribution Miscellaneous

3 Other external costs Service travel Course - expenses Marketing costs, net Office expenses Insurance External services Acquisitions Operating equipment Repairs and maintenance costs Rent - expenses Miscellaneous

4 Costs of employment Wages and salaries Pensions Other costs of employment

Salaries and remuneration og Directors and Board Board and directors Executive board: Fixed salary including pension Variable salary

Avarage number of employees

1.400

909

2.383 200 2.583

3.088 300 3.388

717

752

742

779

The executive board does not hold any speciel or unusual condition with respect to notice period or pension scheme.

55

Notes Parent Company

Group

2015

2014

2015

2014

(tkr.)

(tkr.)

(tkr.)

(tkr.)

5 Holdings in affiliated companies Akia Sisimiut A/S Neqi A/S KNI Ejendomme A/S Internal gains - timing differences Regulatory earlier years

431 491 728 (27) (53)

363 (553) 465 546 0

0 0 0 0 0

0 0 0 0 0

1.570

821

0

0

6 Financial income Interest income - contract of sale Interest income - bank Product hedgings Net forex gains/losses Intra-Group interest

707 637 0 0 1.360

805 591 15.000 1.815 1.901

707 748 0 0 0

805 683 15.000 1.823 0

2.704

20.112

1.455

18.310

19.736 0 0 26.759 4.865

20.521 0 0 12.995 2.197

19.746 2.249 3 26.759 4.866

20.745 1.919 148 12.995 2.197

51.360

35.713

53.622

38.006

12.119 14.975

4.974 14.748

12.119 15.787

4.974 14.912

27.094

19.722

27.906

19.886

7 Financial expenses Interest charges - banks Interest charges - mortgages Other bank charges Interest hedging Other bank charges

8 Tax on earnings for the year Current tax year Adjustment of deferred tax

56

Notes 9 Intangible fixed assets

Software

Parent Company

(tkr.)

Cost 1. april 2014 Additions during the year Transferred from investment in progress Disposals during the year

113.410 0 2.327 0

Cost 31. March 2015

115.737

Depreciations and write-downs 1. april 2014 Depreciations and write-downs of the year Depreciations at write-downs divested assets

57.887 12.193 0

Depreciations and write-downs 31. March 2015

70.080

Book value 31. March 2015

45.657

Book value 1. april 2014

55.523

9 Inangible fixed assets (continue)

Software

Group

(tkr.)

Cost 1. april 2014 Additions during the year Transferred from investment in progress Disposals during the year

113.410 0 2.327 0

Cost 31. March 2015

115.737

Depreciations and write-downs 1. april 2014 Depreciations and write-downs of the year Depreciations at write-downs divested assets

57.887 12.193 0

Depreciations and write-downs 31. March 2015

70.080

Book value 31. March 2015

45.657

Book value 1. april 2014

55.523

57

Notes 10 Tangible fixed assets

Property

Plant and machinery

Other fixtures and fittings

Tangible fixed assets under construction

Total

Parent Company

(tkr.)

(tkr.)

(tkr.)

(tkr.)

(tkr.)

Cost 1. april 2014 Additions during the year Transferred from investment in progress Disposals during the year

583.081 0 14.377 (3.976)

489.798 0 101.619 0

350.916 0 6.914 (4.524)

101.067 68.622 (125.237) (103)

1.524.862 68.622 (2.327) (8.603)

Cost 31. March 2015

593.482

591.417

353.306

44.349

1.582.554

Depreciations and write-downs 1. april 2014 Depreciations and write-downs of the year Depreciations at write-downs divested assets

255.679 21.466 (1.512)

277.645 16.357 0

260.457 16.950 (4.347)

0 0 0

793.783 54.773 (5.859)

Depreciations and write-downs 31. March 2015

275.633

294.002

273.060

0

842.697

Book value 31. March 2015

317.849

297.414

80.245

44.349

739.858

Book value 1. april 2014

327.402

212.152

90.458

101.067

731.079

Depreciation and write-down Depreciation and write-downs for the year: 2015 (tkr.)

2014 (tkr.)

Property Plant and machinery Other fixtures and fittings Loss/gain on sale of fixed assets

21.466 16.357 16.950 (181)

20.814 17.557 22.412 (423)

Depreciation and write-downs total

54.592

60.359

58

Notes 10 Tangible fixed assets (continue)

Property

Plant and machinery

Other fixtures and fittings

Tangible fixed assets under construction

Total

Group

(tkr.)

(tkr.)

(tkr.)

(tkr.)

(tkr.)

Cost 1. april 2014 Additions during the year Transferred from investment in progress Disposals during the year Cost 31. March 2015

741.825 0 15.207 (7.962) 749.070

508.625 0 101.619 0 610.244

356.781 0 7.676 (4.524) 359.933

101.506 69.782 (126.829) (58) 44.401

1.708.737 69.782 (2.327) (12.544) 1.763.649

Depreciations and write-downs 1. april 2014 Depreciations and write-downs of the year Depreciations at write-downs divested assets Depreciations and write-downs 31. March 2015

267.025 25.130 (1.833) 290.322

293.111 16.751 0 309.862

262.315 17.463 (4.347) 275.431

0 0 0 0

822.452 59.344 (6.180) 875.616

Book value 31. March 2015

458.749

300.384

84.498

44.401

888.032

Book value 1. april 2014

474.800

215.516

94.462

101.506

886.284

Depreciation and write-down Depreciation and write-downs for the year: 2015 (tkr.)

2014 (tkr.)

Property Plant and machinery Other fixtures and fittings Loss/gain on sale of fixed assets

25.130 16.751 17.463 (40)

23.642 17.977 22.691 (423)

Depreciation and write-downs total

59.304

63.886

59

Notes 11 Financial fixed assets

Total

Deposits

Holdings in affiliates

Holdings in associated company

Kapitalandele i øvrigt

Parent Company

Cost 1. april 2014 Additions during the year Disposals during the year Cost 31. March 2015

0 0 0 0

40 0 0 40

8.792 0 0 8.792

1.076 33 0 1.109

9.908 33 0 9.941

Adjustments 1 april 2014 Additions during the year Disposals during the year Profit share Adjustments 31. March 2015

0 0 0 0 0

0 0 0 0 0

141 0 (53) 1.650 1.738

(536) 0 0 0 (536)

(395) 0 (53) 1.650 1.202

Internal profits early 1. april 2012 Displacement of internal profits Internal profits 31. March 2013

0 0 0

0 0 0

(591) (27) (618)

0 0 0

(591) (27) (618)

Book value 31. March 2015

0

40

9.913

573

10.525

Book value 1. april 2014

0

40

8.342

540

8.922

Equity in % Home

2015

2014

Kommuneqarfik Kujalleq Qeqqata Kommunea Qeqqata Kommunea

100 82,5 100

100 82,5 100

50

50

Subsidiaries companies are followings: Neqi A/S Akia Sisimiut A/S KNI Ejendomme A/S

Company capital (tkr.)

Equity 31/3 2015 (tkr.)

600 3.000 1.000

5.013 5.173 1.250

80

(94)

Associated company consists of the following Pitsaasut ApS

NĂŚstved Kommune

60

Notes 11 Financial assets (continue)

Holdings in associated company

Deposits

Total

Group

(tkr.)

(tkr.)

(tkr.)

Cost 1. april 2014 Additions during the year Disposals during the year Cost 31. March 2015

0 40 0 40

1.076 33 0 1.109

1.076 73 0 1.149

Adjustments 1 april 2014 Additions during the year Disposals during the year Profit share Adjustments 31. March 2015

0 0 0 0 0

(536) 0 0 0 (536)

(536) 0 0 0 (536)

Book value 31. March 2015

40

573

612

Book value 1. april 2014

40

573

612

2015

2014

(tkr.)

(tkr.)

12 Share capital Company´s share capital consists of shares in the amount of 1.000 DKK or multiples thereof.

No shares are granted special rights. There have been no changes in share capital during the last 5 years

310.000

310.000

13 Retained profit Adjustments - derivatives Parent Compagny / Group

Open positions: Product hedging Interest hedging Forward contracts USD Closed positions: Product hedging

2015

2014

Change in total

(tkr.)

(tkr.)

(tkr.)

(399.518) (91.409) 301.792 (189.135)

15.702 (75.555) (59.463) (119.316)

415.220 15.854 (361.255) 69.819

0

19.970

19.970

0

0

0

60.145

31.592

(28.553)

(128.990)

(67.753)

61.237

Value of inefficient hedgings: Interest hedging Deferred tax: Deferred tax on financial instruments

61

Notes 14 Deferred tax Parent Company

Book value

Property Plant and machinery Other fixtures and fittings Financial fixed assets Inventories Receivables Basis

317.849 297.414 125.902 10.525 0 0 751.690

Value for tax purposes

Difference in the balance

203.737 262.388 87.524 9.941 5.000 11.971 580.561

114.112 35.026 38.378 584 (5.000) (11.971) 171.129

Deferred tax 31. marts 2015, 31,8% Deferred tax on equity items, see note 13 Provisions deferred tax 31. marts 2015

54.418 (60.145) (5.727)

The note for the group is omitted, because there are no joint taxation in Greenland The change in the deferred tax is put together as follows: Parent Company 2015 (tkr.)

Deferred tax beginning Deferred tax on year profit Change in deferred tax on equity items, see note Regulatory deferred tax earlier years Tax value of dividends Deferred tax end

19.098 14.975 (28.553) (1.707) (9.540) (5.727)

Group

2014

2015

2014

(tkr.)

(tkr.)

(tkr.)

39.144 14.748 (28.434) 0 (6.360) 19.098

15.285 15.788 (28.553) (1.707) (9.540) (8.727)

35.168 14.911 (28.434) 0 (6.360) 15.285

15 Long-term debt Parent Company

Credit institutions Due after more than 5 years Credit institutions

Due within 1 year

Due after 1 year

Amortized debt in total

Nominel debt in total

(tkr.)

(tkr.)

(tkr.)

(tkr.)

0 0

611.772 611.772

611.772 611.772

611.772 611.772

611.772 70.109 681.881

611.772 71.972 683.743

611.772 71.972 683.743

0 0

Group

Credit institutions Mortgages Due after more than 5 years Credit institutions Mortgages

0 1.863 1.863 0 62.045 62.045

62

Notes Parent Company

Group

2015

2014

2015

2014

(tkr.)

(tkr.)

(tkr.)

(tkr.)

16 Other debt Accrued vacation pay Accrued tax and pensions Other debts

17.710 10.633 15.792 44.135

17.418 5.463 9.610 32.491

18.182 10.943 16.744 45.869

17.811 5.818 12.008 35.637

17 Contingent liabilities, other financial commitments and guarantees Residual benefits of rents and lease obligations represent For collateral guarantees payment of 0,4 mio. DKK The parent company has guaranteed the subsidiaries Neqi A/S, Akia Sisimiut A/S and KNI Ejendomme A/S´s debts to the bank of Greenland.

According to instructions from the Government of Greenland KNI operates in locations where there is a risk that operations may be discontinued following a governmental decision to close certain settlements. According to the land use legislation in Greenland the licensee is charged with the duty to clean up and restore the area before handing it back to the society. However since the obligation to secure supplies and the decision power to determine in which settlements and towns KNI operates at any particular time remains with the Govenment of Greenland, KNI is at present not able to estimate this liability reliably, neither with respect to the actual need for cleanup and restoration, the monetary extent or the timing of the actualization, if any.

The KNI Group is currently part of an ongoing lawsuit. Management believes that the outcome of this litigation will not have a material impact on its financial position

2015

2014

2015

2014

(tkr.)

(tkr.)

(tkr.)

(tkr.)

18 Fee to the General Assembly elected auditor Audit fee Other assistance

557 557

701 1.392

637 557

781 1.392

1.114

2.093

1.194

2.173

63

Notes 19 Related party transactions and ownership for the parent company Dominant influence Government of Greenland

Grundlag Basis Hovedaktionær Sole shareholder

Other related parties Neqi A/S Akia Sisimiut A/S KNI Ejendomme A/S Pitsaasut ApS

Affiliated company in KNI-group Affiliated company in KNI-group Affiliated company in KNI-group Associated company in KNI-Group

Niels Søren Thomsen Høgni Hansen Bodil Nyboe Andersen Annette K. Sadolin Julia Pars Jørn E. Rosenberg Jens Jørgen Petersen Inger Eriksen H.P. Lynge-Larsen

3952 3800 1270 2900 3900 3250 3920 3911 3911

Ilulissat Thorshavn København K Hellerup Nuuk Gilleleje Qaqortoq Sisimiut Sisimiut

Peter Grønvold Samuelsen

3911 Sisimiut

Chairman Board member Board member Board member Board member Board member Board member Board member Board member CEO

Transactions There has not during the year - apart from intragroup transactions that are eliminated in the consolidated financial statements of KNI been completed transactions with board, directors, executives, shareholders, affiliated companies or other related parties, there has not been implemented on market terms There have been trade with the associate Pitsaasut which constituted 1.8 million. DKK

20 Board positions Board members have the following board positions in other companies Peter Grønvold Samuelsen

Neqi A/S - chairman Akia Sisimiut A/S - chairman KNI Ejendomme A/S - chairman

Niels Søren Thomsen

North Atlantic Seafood A/S - chairman Enoksen Seafood A/S - bestyrelsesformand

Bodil Nyboe Andersen

Kirstein Holding A/S - chairman Kirstein A/S - chairman

Annette K. Sadolin

Skodsborg Sndhedscenter A/S - board member Topdanmark A/S - board member Danske forsikring A/S - board member Topdanmark forsikring A/S - board member DSV A/S - board member Kurhotel Skodsborg A/S - board member

Julia Pars

Air Greenland A/S - board member

H. P. Lynge-Larsen

Neqi A/S - board member

64

Notes 2015

2014

(tkr.)

(tkr.)

21 Distribution of service contract Narsarmiut Aappilattoq Tasiusaq- NAN Alluitsup Paa Saarloq Ammassivik Eqalugaarsuit Igaliku Qassiarsuk Qassimiut Arsuk Qeqertarsuatsiaat Kapisillit Atammik Napasoq Kangaamiut Itilleq Sarfannguaq Attu Iginniarfik Ikerasaarsuk Niaqornaasuk Kangaatsiaq Akunnaaq Ikamiut Kitsissuarsuit Ilimanaq Oqaatsut Kangerluk Qeqertaq Saqqaq Ikerasak Qaarsut Saattut

312

312

504 200 1.146 172 286 334 268 380 198 594 892 446 870 498 1.244 404 512 784 310 342 1.024 2.564 478 334 338 442 238 318 638 838 852 692 942

504 200 1.146 172 286 334 268 380 198 594 892 446 870 498 1.244 404 512 784 310 342 1.024 2.564 478 334 338 442 238 318 638 838 852 692 942

65

Notes 2015

2014

(tkr.)

(tkr.)

21 Distribution of service contract, (continue) Niaqornat Ukkusissat Illorsuit Nuugaatsiaq Upernavik kujalleq Kangersuatsiaq Aappilattoq - UPV Innaarsuit Tasiusaq - UPV Nuussuaq Kullorsuaq Savissivik Qeqertat Siorapaluk Isortoq Kulusuk Tiniteqilaaq Kuummiut Sermiligaaq Narsarssuaq Kangerlussuaq Ittoqqortoormiit

270 644 466 544 738 798 700 646 874 702 1.414 354 104 296 314 904 492 1.138 662 464 1.584 1.498 36.000

270 644 466 544 738 798 700 646 874 702 1.414 354 104 296 314 904 492 1.138 662 464 1.584 1.498 36.000

66

Income statement 1. april 2014 - 31. marts 2015 Varedivisionen 2015

2014

1.231.648

1.152.119

36.000 79.268 (942.151) (170.550)

36.000 74.968 (853.056) (185.888)

234.214

224.144

Costs of employment Depreciation and write-down

(156.467) (32.397)

(164.320) (41.026)

Earnings before financials

45.350

18.797

20 (1.909) (21.286)

0 (1.276) (14.844)

22.173

2.677

Net revenues Income from the Governments payment for service contract Other operating income Consumables Other external costs Gross earnings

Financial income Financial expenses Intra-Group interest Pre-tax earnings for the year

Income statement 1. april 2014 - 31. marts 2015 Energidivisionen 2015

2014

1.201.088

1.208.351

1.733 (1.021.906) (41.327)

548 (1.049.919) (46.353)

Gross earnings

139.588

112.628

Costs of employment Depreciation and write-down

(31.925) (20.678)

(33.538) (21.826)

Earnings before financials

86.984

57.264

0 (98) (25.431)

15.000 (64) (18.055)

61.456

54.144

Net revenues Other operating income Consumables Other external costs

Financial income Financial expenses Intra-Group interest Pre-tax earnings for the year

67

Income statement 1. april 2014 - 31. marts 2015 Stabe 2015

2014

Other operating income Other external costs

8.013 48.097

6.021 45.382

Gross earnings

56.110

51.407

Costs of employment Depreciation and write-down

(42.448) (13.711)

(39.199) (11.468)

Earnings before financials

(48)

740

49.402 (49.353)

38.011 (34.372)

0

4.378

Financial income Financial expenses Pre-tax earnings for the year

Income statement 1. april 2014 - 31. marts 2015 Tilknyttede virksomheder 2015

2014

Results of affiliates Provision for losses at affiliates

1.570 0

821 0

Pre-tax earnings for the year

1.570

821

68