Annual report 2017/2018

Annual Report 2017/18 1 April 2017 – 31 March 2018

KNI A/S CVR. No. 16 60 73 98

Contents Page

Company details

3

Group overview

4

Business units

5

Board of directors and management

9

Management statement

14

Independent auditor’s report

15

Financial highlights and key figures for the Group

16

Facts about the financial year

17

Management report

19

Accounting policies

63

Profit and loss account 1 April 2017 - 31 March 2018

70

Balance sheet at 31 March 2018

71

Equity capital statement

73

Profit and loss account for the Group 1 April 2017 - 31 March 2018

74

Notes to the annual report

75

Segment accounts

85

2

Company information Company name: Subsidiary names:

KNI A/S

Address:

J. M. Jensenip Aqq. 2, Postbox 319 3911 Sisimiut

Company reg. no.

Domicile:

16 60 73 98 Qeqqata Municipality

Tel. Fax E-mail Website:

+299 86 24 44 +299 86 23 96 info@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%)

Auditors: Deloitte Certified Accountants

3

Group overview

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) KNI Ejendomme A/S (share capital DKK 1.0 million).

In addition, as of the balance sheet date, KNI A/S owns 82.5% of the shares in: 

Akia Sisimiut A/S (share capital DKK 3.0 million).

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

4

Business units The KNI Group consists of four business units, all of which are managed and run on the basis of modern business principles. We supply all of Greenland with groceries, consumer goods and fuels.

Polaroil – Greenland’s largest oil supply company

As Greenland is a society undergoing rapid change, it is dependent on companies who are able – often under extreme conditions – to link the entire vast country together with deliveries of vital supplies.

One of these companies is Polaroil, for whom the words safety and responsibility are deeply ingrained in both the company’s objects clause and in the minds of all its employees.

Polaroil operates a total of 69 plants, divided between 16 oil terminals in the towns, 51 oil terminals and one depot in the villages, and one import plant. All of the towns and villages have storage facilities for lubricating oils and gases.

Polaroil purchases, transports, stores, distributes and sells liquid fuels adapted to consumer needs and the environment – all year round, and for the whole of Greenland. The fuels involved are mainly gas oils, aircraft fuel, paraffin and petrol. It is also Polaroil’s task to secure stable prices for the Greenlandic fuel market and the lowest possible level of cost.

Local distribution of liquid fuels in the towns is partly handled by Polaroil’s own organisation, and partly through agreements with local oil dealers. In the villages, this is handled by the company unit Pilersuisoq.

Another of Polaroil’s business areas is to service the international companies who operate oil exploration and mining in Greenland.

5

Pilersuisoq – Greenland’s largest retail chain

Pilersuisoq is a nationwide retail chain with 64 outlets scattered right across Greenland. From the northernmost to the southernmost shop, the distance is more than 2,000 km. The company also operates the duty-free shop chain at the international airport in Kangerlussuaq.

Pilersuisoq secures supplies to everyone – even the smallest village. Deliveries are made by sea and air freight. In a country where many towns and villages are almost inaccessible for a large part of the year due to frozen fjords and harbours, this requires more than ordinary good planning. Efficient logistics and the ability to anticipate needs are therefore a high priority for the retail chain.

In many places the local shop is the hub of village life, and the population is dependent on being able to obtain goods all year round – a task which is somewhat different to that of retail outlets elsewhere in the world, and a responsibility that Pilersuisoq does its utmost to live up to. In many places, in addition to retail sales, the company unit also provides a number of service functions, such as bank, post office, ship berthing, heliport, etc.

In co-operation with customers and local representatives, a basis is secured for development and quality of life in the towns and villages where the Pilersuisoq shops are located. The people in the local community are those who know their own conditions and needs best, and those needs are not the same everywhere in Greenland. It is therefore important that there is local influence, taking account of both the wishes of the customers and local demographic, geographical and business conditions.

Pilersuisoq aims to make its shops a positive focal point in the local community.

All Pilersuisoq shops are equipped with a sales terminal, where you also can shop via www.Pisisa.gl.

6

KNI Engros – Trading with businesses and institutions throughout Greenland

KNI Engros covers the whole of Greenland, as the company operates in both towns, villages and settlements, as well as in the area of ships’ supplies and ad hoc-established mineral exploration sites.

By making use of extensive supplier networks and the purchasing volume of the KNI Group, supplies can be provided in virtually all types of product, tailored to the needs of the individual customer – and at competitive prices.

KNI Engros sells and distributes all types of products to businesses and institutions throughout the country, and the company unit holds the contract for nationwide distribution of beer and carbonated drinks.

In close dialogue with its customers, KNI Engros aims to be the preferred wholesale supplier in Greenland, with easy access to our ordering system and smooth and efficient deliveries directly to the customer.

7

Neqi A/S – Slaughterhouse in South Greenland

Every year, the KNI A/S subsidiary Neqi A/S receives sheep and lambs from more than 38 sheep farms scattered throughout South Greenland. In 2017, Neqi A/S slaughtered 20,569 lambs and sheep.

In 2013 Neqi A/S underwent refurbishment for DKK 60 million kroner, and today it is a modern, EU-approved slaughterhouse. The modernised production equipment has enabled the slaughterhouse to increase its degree of processing, and in dialogue with the retail chains Pilersuisoq, Brugsen and Pisiffik A/S, further development is continually being pursued.

Neqi A/S wishes to be a valuable partner in the development of the agricultural industry. The company sees great potential in developing a stronger agricultural sector, involving not only sheep, but also cattle and the cultivation of root crops.

Neqi A/S is also known for its great efforts to ensure the high quality and fine taste of Neqi lamb.

Production in Neqi A/S takes place under extra-hygienic conditions. Quality, fat content and tenderness are continuously monitored, and veterinary inspectors supervise and approve all processes.

Neqi A/S currently employs around 80 people during the slaughtering period, which lasts approximately eleven weeks, starting in mid-September. Outside the season, Neqi A/S has approximately 25 employees. The employees from Narsaq and the surrounding towns are highly motivated in their work, and thereby contribute to creating a seed-bed for long-term development of the slaughtering process.

8

Board of directors and management Board of directors:

Høgni Hansen (b. 1961) Chairman of the board of directors (appointed by the Government of Greenland) since 2018. In the period 2014 to 2018, he was Deputy Chairman of the board of directors.

Educational background: Commercial training.

Current career: Managing director/CEO, P/F Poul Hansen. Also holds 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.

Najaaraq Christiansen (b. 1982).

Vice-Chairman of the board of directors (appointed by the other members of the board) since 2018.

Board member from 2016 to 2018.

Educational background: Graduate Diploma in Business Administration – accounting and financial management.

Current career: Chief consultant with national accounts.

Competencies: Experienced in work with finance and statistics.

9

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: Holds other directorships in Denmark.

Competencies: International top management in the financial sector, and board positions. Also possesses extensive experience in strategy and organisation.

Annette K. Sadolin (b. 1947) Member of the board of directors (appointed by the Government of Greenland) since 2014.

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

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

10

Søren Jakobsen (b. 1963) Member of the board of directors (appointed by the Government of Greenland) since 2016.

Educational background: MSc (Economics and Business Administration) and MBA. Current career: Board work and consulting.

Competencies: Extensive experience in senior management, strategy, business development and sales.

Mikol Poulsen (b. 1975) Member of the board of directors (staff representative) since 2015.

Educational background: College degree in Leadership and Management, and Arctic Top Governance diploma in board work.

Current career: HRD Manager in KNI A/S Competencies: Experienced in work with organisation and training.

11

Dorthea Isaksen (b. 1971) Board member (staff representative) since 2015.

Educational background: Qualified therapist, JTI testing certificate and Master Class in HRM. Current career: HRD Manager in KNI A/S Competencies: Experienced in work with organisation and training.

Kristian Stach Olsen (b. 1962).

Board member (staff representative) since 2017.

Educational background: Commercial and office education, retail management and fuel facility training.

Current career: Fuel facility manager, Polaroil in Narsaq.

Competencies: Experience in retail and trade in liquid fuels, etc.

12

Management:

Peter Grønvold Samuelsen (b. 1960) Managing director / CEO, KNI A/S Educational background: Master of Science in Public Administration, mini-MBA, diploma degree in management and Arctic Top Governance diploma in board work.

Competencies: Experienced in operations, organisation and business development, strategy formation and implementation. Has previously held other directorships in companies in Greenland, both as chairman and as ordinary board member.

13

Management statement We have today presented the annual report for KNI A/S for the financial year 1 April 2017 - 31 March 2018.

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.

The annual report is submitted to the general meeting’s approval.

Sisimiut, 27 June 2018

Executive board:

Peter Grønvold Samuelsen

Board of directors:

Høgni Hansen Chairman

Najaaraq Christiansen Vice-chairman

Bodil Nyboe Andersen

Annette K. Sadolin

Søren Jakobsen

Mikol Poulsen

Dorthea Isaksen

Kristian Stach Olsen

14

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 2017 - 31 March 2018, which encompasses 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 deems 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 2018, 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 2017 - 31 March 2018, in accordance with the Financial Statements Act. Nuuk, 27 June 2018

Deloitte Certified Accountants Morten Speitzer Certified Public Accountant

Claus Bech Certified Public Accountant 15

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.)

2017/18

2016/17

2015/16

2014/15

2013/14

Result: Net revenue

2,428.2

2,367.4

2,393.9

2,452.8

2,393.4

Operating profit (EBIT)

158.7

142.2

142.1

138.3

82.0

Result of financial items

(55.2)

(38.8)

(40.9)

(52.2)

(20.0)

Pre-tax profit

103.4

103.4

101.2

86.1

62.3

69.3

70.6

68.5

58.1

42.3

1,014.3

965.8

927.4

934.3

942.4

953.9

1,015.9

969.1

911.6

943.5

81.0

61.8

78.4

76.7

82.2

Equity

1,215.6

1,061.2

786.9

891.3

904.9

Balance sheet total

2,226.2

2,209.3

2,251.5

2,271.4

2,032.4

110.6

102.4

74.9

69.8

108.6

1/4 - 31/3

1/4 - 31/3

1/4 - 31/3

1/4 - 31/3

1/4 - 31/3

2017/18

2016/17

2015/16

2014/15

2013/14

Result for the year Balance: Fixed assets Inventories Trade debtors

Investments in tangible assets

Key figures

EBIT - margin (%)

6.5%

6.0%

5.9%

5.6%

3.4%

Return on invested capital (%)

17.6%

17.7%

19.0%

19.7%

16.3%

Net revenue / Invested capital

2.1

2.1

2.2

2.3

2.4

Financial gearing

0.6

0.7

0.9

0.8

0.9

5.7%

6.7%

8.7%

6.5%

4.7%

54.6%

48.0%

35.0%

39.2%

44.3%

3.4

3.5

3.4

3.5

5.4

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

16

Facts about the financial year

The KNI Group has spent DKK 109 million on new investments and the renovation backlog

Organisational changes implemented in the goods division - KNI Engros now belongs under Pilersuisoq

Revenue in the goods division amounted to DKK 1,364 million, corresponding to 56% of the Group’s revenue

A successful KNI fair was held in Ilulissat in the summer of 2017

The Group’s equity amounts to DKK 1,216 million

In 2017/18, KNI began the implementation of its Killingusaaq strategy

The Group’s equity ratio is 55%

Polaroil’s largest single oil tank can hold 25 million litres

Ikummatissaasivilerisunngorniarneq was established in 20017/18

Of 832 employees at KNI in 2017/18, 45% are women

Revenue in the energy division amounted to DKK 1,041 million, corresponding to 43% of Group revenue

Pilersuisoq has 64 retail outlets

17

Pre-tax profit for the year: DKK 103.4 million

KNI annually sponsors a number of social, cultural and sporting activities

During the financial year, Neqi purchased 111 tons of organic Greenlandic potatoes

Five successful KNI fairs have been held in Central, Eastern and Northern Greenland

Pilersuisoq has lowered prices on selected basic products, with an earnings effect of at least DKK 3 million.

The Niuertunngorniarneq training programme has now been running for the past two financial years

During the financial year, 18,834 lambs were purchased by Neqi

KNI allocates DKK 12 million annually to training for the Group’s employees - Nearly 600 employees attended courses in 2017/18

Consumer fuel prices were reduced by a total of DKK 0.65 in 2017/18

In the summer of 2017, the villages of Nuugaatsiaq and Illorsuit were closed down as a result of the tsunami disaster.

A total of DKK 637,500 was donated by suppliers and KNI.

Polaroil has 69 oil facilities in Greenland.

KNI has 676 properties in the form of shops, warehouses, staff housing, etc.

KNI has a total of 280 motorised vehicles: cars, tractor loaders, trucks, ATVs and snow scooters

Polaroil’s total tank capacity is 280 million litres

18

Management report General Information In the KNI Group, the 2017/18 financial year has been another eventful year which has brought many new initiatives and exciting challenges. Work with the Killingusaaq strategy has resulted in the development of the business and results that live up to the goals and ambitions that the strategy supports.

The financial year was also a period in which KNI continued to strengthen the financial foundation of the company, with a further focus on job satisfaction, customer service and an understanding and respect for ‘the inner Greenlandic life’.

The ‘inner Greenlandic life’ is about understanding the customers’ needs, culture and daily life in different parts of the country. KNI has customers in the east, west, south and north, and they all have different needs that KNI must understand and meet.

With a pre-tax profits of DKK 103.4 million, the Group can record a result at exactly the same level as the previous financial year – and this taking into account the fact that it has been necessary to incorporate a provision for losses amounting to DKK 20.0 million relating to the associated company Pitsaasut ApS. On the basis of the profit for the year, the positive earnings trend that has been realised over the past five financial years has been maintained. In line with last year, the result for the year is thus the best for many years, and correspondingly belongs in the category of the best result in the history of the Group.

Killingusaaq In the 2017/18 financial year KNI has continued to work with the new strategy process Killingusaaq, which was launched at the end of the 2016/17 financial year and will continue until 2020.

Killingusaaq is the name of KNI’s strategy development.

Killingusaaq means horizon, but the Greenlandic word can also be translated as though the horizon resembles the ultimate goal – but only ‘resembles’. The horizon can thus never be an expression of the ultimate goal, as it is always moving further away as we move towards it.

Similarly, a company’s strategy cannot encompass a final goal, unless it is a strategy that aims only to close the company. A company strategy will always be dynamic, and the goal will always move, in step with the times. The same applies to the horizon. The horizon is not a terminus, but will always move in step with the times – even when you think you have almost reached its location.

19

This strategy process has continued the work on some of the initiatives and projects that were launched during the previous strategy period, but also includes several new initiatives that will help to continue the development of the company towards new goals and results.

During the financial year 2017/18 work has been done throughout the Group in the four overall action areas of the strategy, in which the content of the four action areas deals with the development of processes and policies.

One-quarter of the four-year strategy period has now been completed, and parts of the focus areas within the four areas of action have been successfully implemented and anchored in the Group and its employees. Throughout the organisation, strategy follow-up meetings are held on a regular basis to evaluate and communicate about the current progress of the strategy process and the financial results realised in this connection.

The ongoing work on the areas of action in the strategy process must together and separately lead to a continued strengthening of KNI’s focus on the customers and their needs, while maintaining our core business of providing secure supplies of fuels and groceries to all settlements in Greenland.

With a presence in almost all the villages and towns of Greenland, the Group plays a central role in society. That means we share a joint responsibility for the development of the country.

During the previous – and the current – strategy period, KNI made considerable progress in the direction of achieving its overall vision. Today, KNI is more profitable as a company, with a greater focus on customer wishes and requirements, than was the case before 2013.

However, there are still internal processes and procedures that can be improved and strengthened, and there is potential for growth in parts of KNI’s business area that can help to strengthen KNI, to the benefit of its customers and owners.

20

The previously-defined mission and vision will thus be retained in Killingusaaq, while the value set will in future be interpreted within the framework of the concepts of “winner mentality” and “contribution culture”.

Similarly, the element of customer focus in the vision will be qualified by KNI continually creating and refining an even better understanding of the “inner Greenlandic life” that plays out in the villages and small towns, and which is closely linked to traditional Greenlandic culture.

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

The life that unfolds in the towns and cities where KNI is present provides the framework within which we must act, as the modern commercial and service business that we wish to be, both as an innovative and globally-established company, and as a company that respects the culture and lifestyle of its customers, in which the surroundings and business conditions play a crucial role.

KNI and its company units must be closely linked to traditional Greenlandic culture. In this way, KNI can meet customer demands while operating and developing a well-functioning trade company.

We wish 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. The goal is to further develop our service concepts, shop structure and customer contact.

21

In the strategy work with Killingusaaq, efforts continue to be made to fulfil the ambition expressed in the vision:

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

Through the Killingusaaq strategy process we will maintain our course and take the next steps towards 2020 in order to realise our vision. The financial growth during the year shows that the strategy works, and that the process is well under way.

The profits for the year and the current general economic trend in the Company specifically support the growth and earnings targets contained in the strategy, which form 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.

Profit for the year The year’s pre-tax profit of DKK 103.4 million demonstrates KNI’s status as a company with a solid financial foundation, and which, on the basis of a well-managed organisation, is continuing to maintain its momentum in continuing satisfactory performance.

Market conditions in the goods division – especially for the company unit Pilersuisoq – have continued to be challenged due to urbanisation and the associated decrease in population.

Nevertheless, the Group has managed to maintain its earnings in relation to the previous financial year.

Profits for the financial year 2017/18 have been realised at exactly the same level as for the financial year 2016/17. However, the total earnings before tax in the current financial year have been created in a slightly different way than in 2016/17.

The overall differences are mainly attributable to the following factors:

22

  

A rise in net sales in 2017/18 of approximately 2.6%, with a corresponding unchanged contribution margin Lower operational depreciation in 2017/18 due to gains on sales of properties Provision for losses in affiliated companies (Pitsaasut ApS) in 2017/18

New low price in Pilersuisoq In February 2018, Pilersuisoq launched its “new and reduced prices”. The reduction applied to selected Pilersuisoq commodities, which the shops must offer under the current service contract with the Government of Greenland.

The reason why this particular group of goods was reduced in price was to make everyday life a little easier and less expensive for the customers, as these product types are basic necessities for most of Pilersuisoq’s customers – and are also part of Greenlandic culture.

In financial terms the price reductions will mean a fall in earnings on these products in the region of DKK 3 million, but it has been crucial for the retail chain to signal that it takes social responsibility seriously.

23

KNI sales fairs Overall, the year has offered many successful activities – including the KNI trade fairs in selected towns in Greenland, which took place between April and September 2017, and the management’s ‘road show’ from Sisimiut to Siorapaluk, which took place at the end of June for approximately 14 days.

People are beginning to get acquainted with KNI’s trade fairs in Greenland. Due to the long distances and the short season, however, it is not possible to hold fairs in all towns in the same season. In the 2017/18 financial year, the following five trade fairs were held:     

KNI fair in Sisimiut, 29 April 2017 KNI fair in Ilulissat, 10 June 2017.

KNI fair in Upernavik, 1 July 2017 KNI fair in Uummannaq, 17 July 2017 KNI fair in Tasiilaq, 2 September 2017

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The fairs are not held solely for the purpose of selling products – they also feature various entertainment events, including races for both adults and children, as well as music and other performances. In addition, the trade fairs give KNI a chance to meet local customers, so that the company can find out what other kinds of goods they may require.

In general, all five fairs were a great success, with lots of visitors from the local population. KNI will continue to hold trade fairs in the 2018/19 financial year, this time in Ilulissat and Narsaq in June 2018, and in Aasiaat in September 2018.

Next stop Siorapaluk In the summer of 2017, the management of KNI also went on a longer ‘road show’ trip in order to visit various places, hold employee meetings and present the management to the employees. It also gave the participating members of the management team an opportunity to see the many shops and oil terminals that KNI operates along the coast.

25

The tour was arranged with a flight from Sisimiut to Qaanaaq, after which the team sailed in KNI’s Targa vessels to Siorapaluk. The journey then went south, calling at most of the towns and villages, before returning to Sisimiut.

This summer’s trip was just as successful as the similar trips the management took in 2015 and 2016, in which the team went north from Sisimiut to Kullorsuaq, and south from Sisimiut to Aappilattoq, respectively.

Tsunami Unfortunately the financial year also brought a tragic incident in June 2017, when a tsunami in the Uummannaq fjord made the Nuugaatsiaq and Illorsuit settlements uninhabitable for the local population. The catastrophe meant that more than 150 inhabitants of the two villages had to be evacuated from their homes, and very sadly, the disaster also cost four people their lives.

Pilersuisoq quickly focused on the two shops in the disaster-stricken areas, and as far as possible, all employees in Nuugaatsiaq and Illorsuit were subsequently re-employed in other Pilersuisoq shops, or in Polaroil.

All intact goods in both Nuugaatsiaq and Illorsuit were subsequently secured and transported to Uummannaq after the closure of the two villages. This was made possible thanks to the emergency services in Qaasuitsup Municipality, who, in cooperation with the Arctic Command, quickly set up a contingency team to move items out of the villages.

The Pilersuisoq shops in the two villages have always been known for their active employees and good retail business.

26

In order to help the families affected by the tsunami in Uummannaq fjord, KNI A/S, together with its suppliers and partners, made great efforts to collect and donate money, provisions and food to the evacuated residents of Nuugaatsiaq and Illorsuit.

The total donation amounted to DKK 0.6 million, of which KNI provided approximately DKK 0.3 million.

The donations were made in August 2017, when children from the two villages who were starting school were given new school bags, and afterwards coffee parties were held for the families.

The main donation was presented in the Uummannaq community centre in December 2017, where KNI awarded donations to more than 60 attendees. The donations consisted of Christmas baskets with Christmas decorations and necessities, as well as gift cards from the Kalaallit Red Cross.

27

Urbanisation Greenland: demographic trends in localities

Inhabited localities Town retail outside KNI KNI 4K KNI town service contract KNI village service contract Outside towns/villages Inhabited localities, total Change from previous year

2011 31,943 7,745 7,145 9,402 361 56,596

2012 32,385 7,699 7,112 9,189 344 56,729 0.2

2013 32,492 7,497 7,152 8,930 299 56,370 -

2014 32,650 7,449 7,105 8,814 264 56,282 -

2015 32,720 7,383 7,156 8,566 158 55,983 -

2016 32,953 7,319 6,951 8,478 145 55,846 -

2017 33,214 7,200 6,923 8,393 130 55,860 0.0

Difference 2018 2017-18 33,477 263 7,076 -124 7,021 98 8,177 -216 126 -4 55,877 17 0.0

KNI’s sales area KNI 4K KNI town service contract KNI village service contract KNI’s sales area, total Change from previous year

2,011 7,745 7,145 9,402 24,292

2,012 7,699 7,112 9,189 24,000 -

2,013 7,497 7,152 8,930 23,579 -

2,014 7,449 7,105 8,814 23,368 -

2,015 7,383 7,156 8,566 23,105 -

2,016 7,319 6,951 8,478 22,748 -

2,017 7,200 6,923 8,393 22,516 -

Difference 2,018 2017-18 7,076 -124 7,021 98 8,177 -216 22,274 -242 -

Source: Statistics Greenland: Population statistics, 1 January 2018

The population of the villages and small towns in which KNI operates its shops is declining. Since 2011, approximately 2,000 people have moved out of the sales area of the goods division.

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

Population statistics as of 1 January 2018 show a modest increase in the total population of Greenland. However, there is still a population decline in the sales area of KNI. This year there was a drop of 242 persons, corresponding to a 1% reduction.

The depopulation trend in KNI’s sales areas will continue to represent a challenge to the Company’s ability to generate sufficient earnings to cover the costs of goods supply. The Company’s Killingusaaq strategy focuses amongst other things on realising the goods division’s full potential through the exercise of even better business acumen, increased skills enhancement and a further strengthening of the foundation, i.e. the support functions in the service centre that assist the goods division.

Organisation In the organisational area, several alterations have taken place in the Executive Group during the financial year:    

Niels Andersen became Chain Director as of May 2017 Githa Brask Olsen became Energy Director as of July 2017 (Acting Energy Director from 1 May to 30 June 2017) Anders Stenbakken became Head of Marketing as of August 2017 Former Purchasing and Logistics Manager Kurt Lauritsen resigned from his position in March 2018

28

Taqqissuut During the financial year, staff development and training has once again been a high-priority area, and the Group has continued the Taqqissuut skills enhancement project.

Taqqissuut refers to KNI´s skills enhancement programme, and thus to all KNI’s courses and training activities.

The Greenlandic word taqqissuut means the stick or branch of arctic willow that was used as fire tongs with a lard lamp, to control the light and heat from the lamp.

Taqqissuut is thus a synonym for enlightenment, and through enlightenment comes enhanced skills.

As mentioned earlier in connection with the Killingusaaq strategy, Taqqissuut is one of the four strategic focus areas that support the overall strategy process. Taqqissuut was launched in spring 2014, and contains a concrete plan for training and skills enhancement for all employees of the Company. In the daily work it is KNI’s HRD department that takes care of the coordination and planning of the many course activities offered to employees in the Group.

This prioritisation was undertaken back in 2014 when Taqqissuut was established, in recognition of the fact that skills enhancement is a crucial factor in enabling KNI to fulfil its vision of being a dynamic and profitable company that understands its customers and their needs.

Taqqissuut is also the name of KNI’s own training room, which is used for various courses and programmes offered by the Company to its employees.

29

One of the major new initiatives in the skills enhancement project, which was begun in the previous financial year 2016/17, involves the establishment of a completely new Niuertunngorniarneq (commercial training programme). The aim of the training is to retain and develop skilled shopkeepers, and train future shopkeepers, through a programme tailored to the Company’s strategic goals.

One of several criteria for the success of the programme is that recruitment challenges must in future be resolved, or at least substantially reduced. At the same time, the programme can also provide the basis for securing better and more sales-focused shops, better management, and increased job satisfaction.

Niuertunngorniarneq is a training programme which takes place over nine months, with three internships in Sisimiut and home assignments in the two intermediate periods. Every year twelve new students start the programme, and since it was established, two groups of twelve trainees have completed it.

At the beginning of the new financial year the third group will be taking the examination that completes the training programme, after which a new team will start.

The commerce training programme has been established in collaboration with Mindbiz, which is responsible for most of the training in close cooperation with the HRD department of KNI A/S. KNI A/S funds the actual programme.

As with Niuertunngorniarneq, work has continued in the current financial year on the establishment of a new internal training programme, Ikummatissaasivilerisunngorniarneq (Oil Terminal Manager Training), which is aimed at all staff of the oil terminals. The first group of ten trainees will start the programme in April 2018. This programme has also been established in cooperation with Mindbiz.

Other internal courses are also being planned in the area of retail shops and staff functions.

For KNI, it is crucial that all employees develop their skills, so that the Company’s competitiveness can continually be enhanced. Globalisation and other developments in our surroundings mean that 30

we cannot make do with the current level of skills. We must continuously develop our employees to ensure they can meet the standards that the outside world demands of us.

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

The following table shows the net cash flows that have been generated between the parent company and the Government of Greenland in the period from 2009 until the end of the financial year 2017/18.

m io . D KK

2 0 0 9 ( *)

0 9 / 10

10 / 11

11/ 12

12 / 13

13 / 14

14 / 15

15 / 16

16 / 17

17 / 18

R e c e iv e d v ia s e rv ic e c o ntrac t: KNI A/S to ta l: P a ym e n t s f ro m t h e G o v e rn m e n t

-10,0

-40,1

-39,3

-37,0

-36,0

-36,0

-36,0

-36,0

-36,0

-31,5

- 10 ,0

- 4 0 ,1

- 3 9 ,3

- 3 7 ,0

- 3 6 ,0

- 3 6 ,0

- 3 6 ,0

- 3 6 ,0

- 3 6 ,0

- 3 1,5

8,4

12,1

24,5

25,0

70,0

71,5

79,9

74,5

C o rpo rate tax: C o rpo ra te ta x - KNI A/S P e rs o nal tax: P e rs o na l ta x - KNI A/S (**)

17,6

69,7

66,5

67,4

68,4

69,3

20,0

20,0

20,0

30,0

20,0

20,0

20,0

P a ym e n t s t o t h e G o v e rn m e n t

17 ,6

6 9 ,7

6 6 ,5

8 7 ,4

8 8 ,4

8 9 ,3

10 8 ,4

10 3 ,6

12 4 ,4

119 ,5

N e t c a s h f lo ws t o t h e G o v e rn m e n t

7 ,6

2 9 ,6

2 7 ,2

5 0 ,4

5 2 ,4

5 3 ,3

7 2 ,4

6 7 ,6

8 8 ,4

8 8 ,0

C o rpo rate div ide nd: Divide nd - KNI A/S

(*): This perio d co vers o nly the restructuring financial year fo r the perio d 1January to 31M arch 2009

During this period, KNI thus received DKK 337.9 million in service contract payments from the Government of Greenland, while within the same period the Company repaid DKK 874.8 million to the Government and municipalities. During the period 2009-2017/18, KNI thus contributed a positive net cash flow to the Government of Greenland amounting to DKK 536.9 million.

Management KNI A/S has been led during the entire financial year 2017/18 by managing director Peter Grønvold Samuelsen. The senior management at KNI has otherwise consisted of:

Finances & IT: CFO Jan H. Lynge-Pedersen Goods division: Chain Manager Niels Andersen (undertaken during April 2017 by Finn Fabricius)

Organisational Energy division:structure Githa Brask Olsen (undertaken by Tage Lindegaard in the period April-May 2017) 31

During the financial year, the organisation of KNI A/S was altered with effect from 1 November 2017. The organisational change, which is comprehensive, will be fully implemented during the 2018/19 financial year.

The new organisational change primarily affects the goods division, where there has been a need to further clarify the distribution of roles and responsibilities.

The business and staff units in the organisation (marked in light blue) have now been united in administrative terms under the chain director of Pilersuisoq. This will mean greater flexibility for the entire goods division in its daily work with the supply of goods, including sales, procurement, logistics and wholesale.

The staff units marked in dark blue are staff functions that exist to support the activities of the business units:   

Goods supply, including Pilersuisoq, KNI Engros, Duty Free and Pisisa.

Fuel supplies Neqi A/S

32

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, necessary investments and the distribution of dividends to the owner, together with satisfactory solvency and liquidity.

The Company seeks 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 secure 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 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 at KNI A/S 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 2017/18 were: 33

Goods division:  Retail and wholesale sales in villages and towns.  Distribution and wholesale sales of beer and soft drinks.  Sales of services to 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.

In the financial year 2016/17, a new service contract has been entered into for the supply of goods with effect from 1 January 2017. The service contract incorporates an annual procedure to ensure that the contract is continuously extended by one year, so that it continuously operates with a rolling framework over a four-year period.

As of 1 January 2018, an addendum to the aforementioned service contract has been drawn up. The original annual payment of DKK 36.0 million has been adjusted downwards by DKK 17.8 million, due to the following two factors:  

The villages of Nuugaatsiaq and Illorsuit have been closed and are thus no longer included in the service contract payment Financial savings following the introduction of the nationwide harmonised price reform for electricity and water as of 1 January 2018

In essence, the service contract states the following: 

KNI has a duty of supply for all villages, including Kangerlussuaq and Narsarsuaq, as well as the towns Qaanaaq, Upernavik, Uummannaq, Qeqertarsuaq, Qasigiannguit and Tasiilaq. o The level of service is as follows:

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

Depot 1-29

Kiosk 30-75

Service shop 76-120

Village shop 121-600

Min. 2 hours weekly 146

Min. 10 hours weekly 236

Min. 20 hours weekly 294

Min. 20 hours weekly 341

Nanoq shop* More than 600 Free Free

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

34





The regulation of KNI’s prices in shops, kiosks, service shops and village shops of goods covered by the basic range must not exceed the change 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 18.2 million annually, and covers only villages with up to 600 inhabitants.

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

Similarly, during the financial year 2016/17 a service contract has been entered into with effect from 1 January 2017 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 addition, this service contract has been entered into under precisely the same chronological terms as the service contract for the supply of goods, which means that it operates under a rolling fouryear framework.

The current service contracts thus secure KNI a four-year framework for the Company’s main activities.

In essence, the service contract for the sale of liquid fuels states the following:  



 

KNI has a supply obligation 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 of less than 200 GRT. 3) Major infrastructure works outside urban areas and mines.

4) Direct deliveries to Mittarfeqarfiit’s own oil terminals.

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 oil terminals of the energy division. It is expected that the maintenance backlog will be completed in 2025.

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

Schematically, KNI’s overall activities may be illustrated as follows: 35

Division Goods

Segment Retail, within the service contract

Retail, outside the service contract

Energy

Wholesale

Greenland.

Fuel, within the service contract

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.

Supply obligation, with requirement for identical prices.

Commercial activity.

Slaughtering and processing of lamb and cattle 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

The year in brief for the Group This annual report covers the period from 1 April 2017 to 31 March 2018.

During the financial year 2017/18 revenue amounted to DKK 2,428 million, corresponding to a rise of DKK 61 million compared to the previous financial year.

36

KNI overall - net revenue (DKK ‘000) 2017/18

2.500.000 2.450.000 2.400.000 2.350.000 2.300.000 2013/14

2014/15

2015/16

2016/17

2017/18

The reason for this is to be found in both the goods division and the energy division. In the goods division revenue rose by almost DKK 29 million, while the revenue level in the energy division rose by DKK 25 million.

In the goods division, the growth in sales covers activities in both the retail and wholesale sectors.

In the energy division, the growth in activities lies outside the service contract area.

KNI overall - other operating income (DKK ‘000) 2017/18

90.000 85.000 80.000 75.000 70.000 2013/14

2014/15

2015/16

2016/17

2017/18

In addition to income from its revenue-generating activities, the Group has also received DKK 66.7 million in other operating income. These revenues primarily relate to income from service agreements and rental income. During the financial year these revenues fell by DKK 2.6 million, mainly within the service agreements.

Pre-tax profit for the year for the Group as a whole has been realised at DKK 103.4 million, as against DKK 103.4 million the previous financial year. The result is thus at exactly the same level as the previous financial year.

37

KNI overall - pre-tax profit (DKK ‘000) 2017/18

120.000 100.000 80.000 60.000 40.000 20.000 2013/14

2014/15

2015/16

2016/17

2017/18

The profit and loss account after tax amounted in all to a profit of DKK 69.3 million, compared with a profit of DKK 70.6 million in the financial year 2016/17.

Net profit for the year is thus also very close to the result for the financial year 2016/17, deviating by just DKK 1.3 million. However, total earnings in the current financial year have been created in a slightly different way than in 2016/17.

The overall differences are mainly attributable to the following factors:   

A rise in net sales in 2017/18 of approximately 2.6%, with a corresponding unchanged contribution margin Lower operational depreciation in 2017/18 due to gains on sales of properties Provision for losses in affiliated companies (Pitsaasut ApS) in 2017/18

The result for the year has been achieved with the organisation’s full focus on the new strategy process, Killingusaaq, which was launched on 1 January 2017.

As well as performing structured work in accordance with the strategic objectives of growth, earnings, training and investment, there has also been a continued focus on cost control during the financial year. Within the cost group of other external costs, this has resulted in a realised cost level that is DKK 7.7 million less than the previous year, amounting to a drop of approximately 5%.

Within personnel costs, there has been a corresponding realised increase of DKK 10.6 million, or approximately 4%. This is partly due to increased activity in the goods division, ordinary salary adjustments and various other personnel-related one-off expenses.

Overall, the total level of costs has thus increased marginally from DKK 423.0 million in the 2016/17 annual report to DKK 425.9 million in the current financial year, corresponding to a rise of less than 1%.

38

KNI overall - costs (DKK ‘000) 2017/18 300.000 250.000 200.000

Eksterne

150.000

Personale

100.000 50.000 2013/14

2014/15

2015/16

2016/17

2017/18

Parent company earnings from affiliated companies (after tax) have been realised at a somewhat higher level than in the 2016/17 financial year. The 2017/18 result is thus a profit of DKK 1.1 million, as against a loss of DKK 0.2 million in the previous financial year.

This improvement, corresponding to DKK 1.3 million, is mainly attributable to the performance of the subsidiary Neqi A/S. Reference is made to the company’s annual report for 2017/18, which describes the specific reason for the positive performance of the company.

KNI overall - share of profit in affiliated companies (DKK ‘000) 2017/18

2.000 1.500 1.000 500 -500

2013/14

2014/15

2015/16

2016/17

2017/18

Significantly less positive is the fact that the profit for the year has been adversely impacted by DKK 20.0 million relating to the profit share of the Group’s associated company Pitsaasut ApS. This negative earnings share has arisen because it has proved necessary to make provision for the expected deficit in Pitsaasut ApS as a result of the company having realised a loss of DKK 20.0 million on receivables from a debtor. The debtor in question is currently in liquidation, and no dividend is expected to be paid from its assets.

39

KNI has evaluated the reason why this loss has occurred, and has implemented organisational changes and adjusted internal control procedures in order to prevent a similar situation arising in future.

The Company’s net financial costs fell from DKK 38.8 million in 2016/17 to DKK 35.2 million in 2017/18, corresponding to a drop of DKK 3.6 million.

KNI overall - net financial costs (DKK ‘000) 2017/18

60.000 40.000 20.000 2013/14

2014/15

2015/16

2016/17

2017/18

This fall is primarily due to a marginally smaller average drawing on the Company’s credits compared to the previous financial year, together with a lower average interest rate in relation to the previous financial year.

At the end of the current financial year, KNI had a registered outflow of DKK 650.6 million in credit facilities, as against DKK 655.7 million the previous year – a reduction in utilisation of the Company’s credit facilities corresponding to DKK 5.1 million.

The Company’s mortgage debt fell from DKK 53.0 million in 2016/17 to DKK 50.4 million in 2017/18 – a decrease of DKK 2.6 million. Overall, the sum of credit utilisation and mortgage debt thus fell by DKK 7.7 million in the financial year 2017/18.

KNI overall - alterations in liquid funds (DKK ‘000) 2017/18 120.000 100.000 80.000 60.000 40.000 20.000 -20.000 -40.000 -60.000 -80.000 2013/14

2014/15

2015/16

2016/17

2017/18 40

The rise in liquid funds of DKK 5.2 million during the financial year may thus be regarded as a neutral impact compared with the previous financial year.

Cash flows from the Group’s primary operating activities have marginally fallen overall by DKK 9.8 million, and thus amounted to DKK 181.3 million at the close of the financial year 2017/18.

Investment activity raised by DKK 4.7 million compared to the previous financial year, amounting to DKK 103.6 million overall in 2017/18.

The liquidity impact of the changes in working capital was negative at DKK 22.2 million, as against a negative impact of DKK 11.5 million in 2016/17. The negative value of DKK 22 million for the year relates to: 

 

Changes in inventories in the goods division, the energy division and subsidiaries, which have fallen by DKK 62 million. The fall in inventories in 2017/18 is expected to continue in the 2018/19 financial year, with at least the same impact in terms of amounts.

A rise in claims corresponding to DKK 47.0 million.

A fall in debt to suppliers and other debt corresponding to DKK 37 million.

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 financing potential for 2018/19 and the years ahead. The fulfilment of this potential for multi-year financing on attractive terms requires a stable framework for the Company’s operations. This stability has been safeguarded through the four-year rolling service contracts.

This has meant that as of October 2017, KNI A/S has entered into a new joint banking agreement with the Company’s financial partners with maturities of three and five years, and with the possibility of one-year extensions after one and two years, respectively.

Mio. DKK

KNI overall - credit drawings 2017/18 1.200,0 1.000,0 800,0 600,0 400,0 200,0 0,0

Træk på kreditter Kreditmaks

In all, the Company’s credit facilities amount to DKK 1,000 million as of the balance sheet date, of which DKK 500 million takes the form of long-term liabilities.

41

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

During the financial year, the Company has been operating in a market that has seen very large fluctuations in the currency and commodity markets. The Company co-operates closely with its financial partners to hedge the risks to which the Company may be exposed as a result of the market conditions.

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

2017/18

2016/17

2.428,2

2.367,4

Gross profit

465,8

454,3

Profit before financial items

158,7

142,2

Pre-tax profit

103,4

103,4

69,3

70,7

(mio. DKK.) Revenue

Result for the year

The result from ordinary activities for the Group in 2017/18 is a pre-tax profit of DKK 103.4 million. The result for the financial year is thereby at exactly the same level as the previous year.

Trend in pre-tax profit - group

2017/18

2016/17

Energy Division - Polaroil

54,1

65,5

Goods Division - Pilersuisoq

66,4

38,3

Neqi A/S

1,3

-2,6

Akia Sisimiut A/S

1,7

0,9

KNI Ejendomme A/S

1,9

0,8

-2,0

0,5

Pitsaasut ApS

-20,0

0,0

Pre-tax profit

103,4

103,4

(mio. DKK.) Business units:

Affiliated companies:

Change in intra-group profits Associated company:

42

However, total earnings in the current financial year have been created in a slightly different way than in 2016/17.

The overall differences are mainly attributable to the following factors:   

A rise in net sales in 2017/18 of approximately 2.6%, with a corresponding unchanged contribution margin Lower operational depreciation in 2017/18 due to gains on sales of properties Provision for losses in affiliated companies (Pitsaasut ApS) in 2017/18

Pre-tax profit for Polaroil, the Company’s energy division, was DKK 54.1 million for the financial year, as against DKK 65.5 million the previous year.

This decline in profit of just under DKK 11 million is primarily due to the following factors:  

A reduction in the profit goal under the current service contract, by agreement with the government of Greenland Consumer prices were reduced during the financial year by a total of DKK 0.65 per litre

Operating costs and staff costs have remained marginally unchanged in relation to the previous financial year. Corresponding conditions apply to the trends in depreciation and financial items.

In the Company’s goods division, the result of activities was a profit of DKK 66.4 million for the financial year, as against a profit of DKK 38.3 million the previous year. This significant profit improvement – corresponding to DKK 28.1 million – has been achieved on the basis of the following factors:   

Greater revenue and earnings in retail activities Lower operational depreciation due to gains on sales of properties Lower financial costs

The level of costs in the goods division, in relation to other external costs, has fallen by DKK 10.6 million, while staff costs have risen by DKK 7.7 million.

The rise in staff costs is due to increased activity in retail sales, ordinary salary adjustments and various other personnel-related one-off expenses.

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 be channelled into the Company’s business units. Staff Functions have also seen the introduction of efficiency measures, which have resulted in lower costs than in the previous financial year. The use of external consultants has for example been scaled back, with more of the Company’s tasks now being handled by the Company’s own employees.

43

Consolidated pre-tax profit for the year is DKK 103.4 million, which is regarded as satisfactory.

The outlook for the 2018/19 financial year is for a pre-tax profit on the order of DKK 116 million.

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 2017/18 was characterised by continued intensive work with the implementation of and following-up on the strategic initiatives that form part of the Killingusaaq strategy process.

The tasks have inter alia included:     

Focus on revenue growth with associated improved earnings Focus on improved inventory management with associated lower costs for waste and rejects Focus on purchasing and logistics Focus on skills enhancement and better business acumen Development of the division’s organisational structure

All of the above focus areas have made a concrete contribution to improving the year’s profits, compared to the previous financial year. The final focus area, relating to organisational matters, took effect from November 2017 but is expected to be finally implemented during the financial year 2018/19.

Goods division - trend in net revenue (DKK ‘000) 2017/18

1.400,0 1.300,0 1.200,0 1.100,0 1.000,0 2013/14

2014/15

2015/16

2016/17

2017/18

The division’s revenue was realised at DKK 1,363.6 million, approximately DKK 28 million higher than last year – a rise corresponding to 2.2%. The contribution margin on revenue was DKK 337.5 million, as against DKK 316.7 million the previous financial year.

44

Goods Division (mio. DKK.)

2017/18

2016/17

Retail revenue, villages

455,8

453,1

Retail revenue, towns

432,9

415,5

Whole sale revenue and online sales

474,9

466,3

Revenue total

1.363,6

1.334,9

Gross margin

24,8%

23,7%

The rise in the contribution margin is primarily due to the rising level of turnover and an approximately 1% increase in gross margin. However, consumption-regulating items have also been slightly lower than in the previous financial year.

The realised contribution margin corresponds to a realised gross margin of 24.8%, compared to 23.7% the previous financial year.

The result for the year in the goods division was a profit of DKK 66.4 million, as against a loss of DKK 38.3 million the previous financial year.

Goods division overall - pre-tax profit (DKK ‘000) 2017/18

80.000 60.000 40.000 20.000 2013/14

2014/15

2015/16

2016/17

2017/18

In the financial year 2016/17, a provision for obsolescence on inventories was made amounting to DKK 8.5 million. This provision level was reduced in 2017/18 to DKK 6.0 million.

Work is ongoing to maintain this level through close collaboration between the shops and the purchasing department.

The pro forma cash flow for the year in the goods division may be seen in the following table.

45

Goods Division (mio. DKK)

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

2017/18

2016/17

66,9

54,3

-42,5

-38,4

-

-

-

-

24,4

15,9

It is important to note that the cash flow statement is based on a number of assumptions and preconditions, the most important of which are:   

Working capital (receivables, payables, inventory levels, etc.) remains unaltered over time The energy division is burdened by dividend payments Corporate tax falls due for payment immediately.

The table shows that the change in liquid funds has risen compared to the previous financial year – corresponding to DKK 8.5 million. This is primarily due to the increase in cash flows from operating activities.

KNI has entered into a service contract with the Government of Greenland to operate shops in villages, outlying districts and smaller towns.

During the financial year, payment for this service contract amounted to DKK 31.5 million, which corresponds to a fall of DKK 4.5 million compared to the previous financial year. The explanation for this decline in the service contract payment is stated above in this report.

Total staff costs for the financial year amounted to DKK 336.4 million, as against DKK 339.3 million the previous year, and thereby showed a marginal fall.

During the financial year, work also continued in the goods division to reduce the current backlog in renovation work for the division’s building stock of more than 400 buildings. In the 2016/17 financial year, the total renovation backlog was estimated at around DKK 300 million.

This backlog could be reduced by deactivating buildings that are not in use. During the financial year, sales of property were again undertaken through open tender, and this process will also continue in the coming financial year.

Those buildings that are not or cannot be sold will be deactivated by other means, so that they do not burden KNI with ongoing operating costs.

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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.

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 energy-efficient solutions.

This will put further pressure on the earnings of the goods division in the long term.

At least DKK 35-40 million is currently allocated each year for investments in the goods division.

In order to reduce the renovation backlog over, for example, a 20-year period, another DKK 15 million will need be allocated each year for investments.

Investment at this level will require a strong focus on obtaining the necessary liquidity from the Company’s earnings.

Despite the fact that considerable funds are allocated annually for the implementation of investments, there are often major challenges in applying the whole investment framework, as investments are often delayed by a lack of planning permission or by the limited availability of qualified contractors in the villages.

Investments - Goods Division (mio. DKK.)

2016/17

2017/18

Total

Budgeted investments

70,5

78,8

149,3

Completed investments

38,4

42,5

80,9

Unused budgeted funds

32,1

36,3

68,4

As the above table shows, it has not been possible to implement the budgeted investments in the goods division over the past two financial years, for the reasons described above.

There thus remains unused liquidity amounting to around DKK 68 million, which should in principle be treated as savings for future use.

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Energy division Energy division - trend in net revenue (DKK ‘000) 2017/18

1.300,0 1.200,0 1.100,0 1.000,0 900,0 2013/14

2014/15

2015/16

2016/17

2017/18

Revenue in the energy division for the financial year 2017/18 was realised at DKK 1,040.7 million, compared to DKK 1,015.8 million the previous financial year – a rise of DKK 24.9 million, or 2.5%. The contribution margin on revenue was DKK 164.6 million, as against DKK 177.1 million for the same period last year.

Energy Division (mio. DKK) Sales of liquid fuels - mill. litres Revenue, sales of liqued fuels - DKK mill.

Revenue, other energy products - DKK mill.

Import of liqued fuels - mill. litres Gross margin

2017/18

2016/17

226,2

209,0

1.228,8

1.186,2

23,3

23,5

230,2

212,0

15,8%

17,4%

The decrease in contribution margin is partly attributable to the reduction in consumer prices during the financial year, but is also due to the fact that earnings on activities outside the service contract have been lower than was the case for the 2016/17 financial year. It can thus be seen that the gross margin has fallen by 1.6%.

The realised contribution margin corresponds to a gross margin of 15.8%, compared to 17.4% the previous year.

The result for the year in the energy division was a profit of DKK 54.1 million, as against DKK 65.5 million the previous financial year.

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Energy division overall - pre-tax profit (DKK ‘000) 2017/18

80.000 60.000 40.000 20.000 2013/14

2014/15

2015/16

2016/17

2017/18

The pro forma cash flow for the year in the energy division may be seen in the following table.

Energy Division (mio. DKK)

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

2017/18

2016/17

64,8

71,1

-62,0

-55,2

-20,0

-20,0

-

-

-17,2

-4,1

It is important to note that the cash flow statement is based on a number of assumptions and preconditions, the most important of which are:   

Working capital (receivables, payables, inventory levels, etc.) remains unaltered over time The energy division is burdened by dividend payments Corporate tax falls due for payment immediately.

The table shows the change in liquid funds to be DKK 13.1 million less than the previous financial year, mainly due to a fall in cash flows from operations and a rise in investment activity.

It can also be seen that the liquidity created through the profit for the year has been specifically applied to investments and dividend payments, which supports the conclusion that there are no cross-subsidies between the energy division and the goods division.

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

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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 170 million over the next seven years.

Overall consumer prices were adjusted twice during the period:  

As of 1 April 2017, a price reduction of DKK 0.20 per litre was introduced.

As of 10 March 2018, a price reduction of DKK 0.45 per litre was introduced.

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

The energy division possesses a total of 430 oil terminals for liquid fuels: 151 in the towns, and 279 in the villages. The capacity of the village terminals is 63 million litres of fuel, and in the towns 219 million litres. The total terminal capacity is 282 million litres.

The division’s challenges remain:   

To increase and maintain sales revenue Correct positioning in relation to oil and mineral exploration activities Rising environmental requirements, with greater demands towards employee skills and physical installations

Notes on the parent company’s balance sheet Intangible fixed assets As of the balance sheet date, intangible fixed assets amounted to DKK 31.2 million, as against DKK 34.4 million in the financial year 2016/17. Investments worth DKK 2.3 million have been undertaken in the financial year, compared to the previous year’s DKK 1.4 million.

Property, plant and equipment As of the balance sheet date, property, plant and equipment amounted to DKK 838.0 million, as against DKK 783.2 million in the financial year 2016/17. Investments worth DKK 107.0 million have been undertaken in the financial year, compared to the previous year’s DKK 99.0 million.

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

DKK 2.8 million in Neqi A/S DKK 6.1 million in Akia Sisimiut A/S DKK 3.9 million in KNI Ejendomme A/S

Financial fixed assets rose during the financial year from DKK 11.7 million to DKK 12.8 million.

The rise is solely attributable to the change in profit share in the subsidiaries.

Inventories At year-end, inventories amounted to DKK 932.8 million, as against DKK 995.4 million last year; a fall of DKK 62.6 million, or approximately 6%.

This fall is primarily attributable to inventories in the energy division, which decreased by DKK 67.1 million. The decrease is solely attributable to the lower price of imported oil in the current financial year, compared to 2016/17.

In the goods division, inventories are largely unchanged compared with the previous financial year.

It is expected that in the coming financial year, inventories will be reduced by an amount at least equal to the stated decrease in 2017/18.

The composition of the inventories may be seen in the following graphs:

Inventories- Energy division (DKK mill.)

17/18 600.0

450.0

Inventories- Consumables (DKK mill.)

17/18

Inventories - Goods division (DKK mill.)

17/18 4.0 3.0

400.0

2.0

550.0 350.0

1.0 -

500.0

300.0 2016/17

2017/18

2016/17

2017/18

2016/17

2017/18

Equity The Company’s equity rose from DKK 1,061.2 million as of 31 March 2017 to DKK 1,215.6 million as of 31 March 2018 – an overall rise corresponding to DKK 154.4 million, or 14.6%.

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KNI overall - equity (DKK ‘000) 2017/18

1.500.000 1.000.000 500.000 2013/14

2014/15

2015/16

2016/17

2017/18

The equity trend 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 rose by DKK 144.8 million in the period from 31 March 2017 to 31 March 2018, before adjustments for deferred tax. The value at the end of the financial year 2017/18 was positive by DKK 55.6 million, compared to a negative value of DKK 89.2 million at the close of the financial year 2016/17.

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 guard against 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.

If the market value of the financial instruments is negative, this will also has a negative impact on the Company’s solvency ratio. On page 16 in the statement of key figures, it may be seen that the solvency ratio, seen historically over the past few financial years, has been impacted by negative market values.

It is important to stress in this connection that if the balance sheet shows negative market values in relation to product and currency hedges, this will not have a negative impact on the Company’s financial development, as these values will be implicitly recognised in consumer prices.

The graph below shows clearly that the solvency ratio has been rising over the past two financial years, mainly due to the fact that the market value of the financial instruments has risen, and thus no longer shows negative values at the end of the financial year 2017/18.

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KNI overall - solvency ratio (%) 2017/18

60,0 40,0 20,0 2013/14

2014/15

2015/16

2016/17

2017/18

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 69 different localities in Greenland, and at the end of the financial year 2017/18 the Company had around 934 employees, corresponding to 760 full-time positions.

KNI overall – number of full-time employees 2017/18

780 760 740 720 2013/14

2014/15

2015/16

2016/17

2017/18

The size of the workforce has not altered since the end of the financial year 2016/17.

Conditions of employment will change in all parts of the Group in accordance with the strategy project “Killingusaaq”, and will not only be focused on the goods division. The goal is to optimise 53

customer focus, increase competitiveness and secure earnings on the basis of employee skills, new work behaviour and technology.

Over the past four financial years, KNI has enjoyed very stable staff levels in the number of apprentices and trainees recruited for our shops and service centre. However, at the end of the financial year 2017/18 the total number of trainees was 62, corresponding to a marked increase of 20% in relation to the previous financial year.

KNI overall – number of trainees 2017/18

80 60 40 20 2013/14

2014/15

2015/16

2016/17

2017/18

Career planning from trainee to various levels and development possibilities in the Group, as well as the requirements towards the individual and the individual’s possibilities, must be made visible and accessible. There are requirements towards employee profile, attitude to work and skills enhancement for all employees of KNI. The requirement for skills enhancement applies to all employees – including, for example, trainees, new employees, village shopkeepers, shop managers and division managers.

KNI is characterised by a very high level of local presence and a good gender balance, as 45% 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 both 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, oil terminals, slaughterhouse and service centre.

At KNI, training and supplementary training is regarded as an investment, though not one that leads to activation in the financial year.

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As previously mentioned under “General remarks”, KNI has continued to work with the skills enhancement programme Taqqissuut in 2017/18. 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 is the name used to refer to KNI’s skill enhancement project, which is a major priority in the current strategy project, Killingusaaq. Taqqissuut has connotations of enlightenment, education and increased competency.

For the past four years, structured staff development has been on the agenda at KNI. In the 2012/13 financial year, less than 100 employees had attended courses and courses.

By the 2016/17 financial year that number had increased to 548 employees, and in the current financial year the figure is up to almost 600 employees.

In the financial year 2017/18 KNI allocated DKK 7.2 million to training, as against DKK 9.1 million the previous year. The fall, equivalent to DKK 1.9 million, reflects only time lags in utilising the framework of the overall course budget.

However, the fact that the overall framework for staff training has risen in recent financial years reflects the increased priority given to skills enhancement, which is part of the foundation of the current Killingusaaq strategy.

In the 2013/14 financial year, a budget of just over DKK 4 million was allocated to skills enhancement for staff. In the 2017/18 financial year this budget has been tripled, and now amounts to DKK 12 million.

KNI overall - training costs (DKK ‘000) 2017/18

10.000 8.000 6.000 4.000 2.000 2013/14

2014/15

2015/16

2016/17

2017/18 55

KNI seeks to ensure that its 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. During the financial year, much more targeted work has been performed with the working environment and workplace safety.

KNI wishes to promote awareness and knowledge of diet and healthy lifestyles among its customers, employees and partners. The goal is a healthier lifestyle with reduced 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 making the greatest possible contribution to the community, including being able to attract and develop committed employees.

KNI works actively with CSR, in which we have a particular focus 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 a sense of 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. Security of supply is essential in order to enable people to enjoy a good life in the country’s villages and small towns. KNI maintains a constant focus on this responsibility.

At 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 shoulders its share of this joint social 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 also included in the focus areas of the current strategy process. They are the guiding principles in the way we play our roles; in relation to our tasks in the community, global trends – of which we are also a part – and the norms that we are expected to live up to in modern customer relations.

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It is important to KNI that dynamic development continually takes place in our understanding of our common values, so 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 a 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 Cooperation

Our history goes back a long way, but our vision points far into the future. This makes many demands on how we run our business – it must be done with ambition and zeal, but first and foremost, it must be done with direction. That is why we have developed our values, which form the foundation for our behaviour internally, coupled with our strategy, which defines our work efforts externally.

All outward trade starts from within. Through our values, we focus on establishing the optimal framework that will enable us all to create the best results for our clients. Our working environment must be characterised by trust, respect, room for innovation and responsiveness to the customer. It must create a workplace where we feel at home, and of which we are proud.

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.

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We currently sponsor:    

Arctic Circle Race Avannaata Qimussersua Nagdlunguak´48 Arctic Sports Qaarsut

As well as our standard sponsorships, we also support a number of individual events at local or national level.

In addition, KNI awards a prize to the new Bachelor graduate who achieves the highest mark at the University of Greenland each year, and KNI will shortly enter into a similar agreement with the Greenland Business School in Qaqortoq.

Each year, KNI provides financial support to employees whose children are attending continuation school or taking language-learning trips abroad.

Similarly, KNI is very active in the national collections for children and young people, and in Neriuffiit (Combat Cancer), KNI also supports activities in our market area with participation in local events, including as 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, aims to comply.

In this context, a self-assessment report has been published on the Company’s website which can be accessed via 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 49. The management and board are continuing to work on the remaining recommendations.

The management of KNI consists of a board of directors and an executive board. The board of directors has nine members, three of whom are employee representatives elected for a period of four years, while the other six are elected by the general meeting and stand for election every year. The six board members elected by the general meeting are independent, according to the definition contained in the recommendation of the “Committee for Good Corporate Governance”.

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The board members represent a wide spectrum of experience from Greenlandic, Danish and international business life, and of course Greenlandic society. The board of directors is chaired by Høgni Hansen, who is appointed for a period of one year at a time.

The board has established one committee: 

The remuneration committee

The executive board consists of one managing director: CEO Peter Grønvold Samuelsen. For other positions of the members of the board of directors and executive board, see note 21. There is no age limit for members of the board of directors.

The remuneration of members of the board of directors is subject to the approval of the annual general meeting, and is specified in note 4. The fee consists entirely of a basic fee. The remuneration of the executive board is negotiated with the board of directors and consists of a fixed basic salary, a performance bonus and other non-monetary benefits, such as a company car, etc. The remuneration of the executive board is specified in note 4. There are no unusual severance agreements in the employment contract of the management.

A board evaluation is undertaken annually. Every second year, this takes place on the basis of an external evaluation process.

The board of directors 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 an “internal auditing” function, which is amongst other things intended to reduce losses due to criminal actions 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.

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

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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 to 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 one year, but have previously had longer securing periods.

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.

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.

In order to reduce the risk of debt financing collapse, 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 of directors and executive board work continuously 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.

Outlook for KNI A/S The coming financial year, covering the period 1 April 2018 - 31 March 2019, will be another year in which the whole organisation will continue its focused work with the Killingusaaq strategy process.

Expectations towards the financial year 2018/19 are fundamentally for a continuation of the positive development that the Group has experienced over the past few financial years – a development that reflects the management’s continued belief that the KNI group can go on delivering results that meet the ambitions described in the Company’s strategy material.

This means that the entire Group jointly undertakes to live up to:   

Continued growth in pre-tax profits Continued growth in return on equity Continued positive development in solvency ratio.

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The developments in return on equity and solvency ratio will be based on their values, excluding developments in the market values of financial instruments.

It will be exciting and challenging to begin a new financial year in which KNI, with all its talented people, will once again demonstrate the ability to develop the Company towards new goals and results.

KNI A/S does not anticipate any major changes in its basic business activities during the financial year 2018/19, for which reason the Company, on the basis of its strategy, expects pre-tax profits in the next financial period on the order of DKK 110-116 million.

Goods division In the goods division, the primary focus remains on securing a level of earnings within both retail and wholesale activities that will create a basis for meeting the owners’ demands and provide the necessary headroom to allow the division to remedy the renovation work backlog in the division’s building stock.

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

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

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

Generating revenue growth Reducing the number of suppliers Strengthening earnings on the individual products Reducing inventories and the associated liquidity binding Sharpening the focus of shopkeepers on sales and cost control in the shops

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

Energy division The energy division’s service contract is formulated to take account of the fact that the division has a renovation backlog that must be addressed in the period leading up to 2025. This goal will be met by defining a surplus target in the service contract, and by determining the share of the profits to be used to alleviate the renovation backlog.

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There is no expectation of significant changes in earnings for the energy division, in either an upward or a downward direction.

Growth in Polaroil depends very much on the progress of activities outside the service contract – primarily in the area of oil and mineral exploration. 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 under market conditions, a relatively stable development is expected.

Neqi Going forward, the company faces the challenge of securing efficient operations with corresponding satisfactory earnings that will generate the necessary cash flow to allow the company to reduce its interest-bearing debt.

The company cannot currently generate revenue that will enable profitable operations, which means that it is still dependent on receiving service contract payments from the Government of Greenland.

During the financial year, the company continued to be in dialogue with the Government of Greenland about the possibilities of increasing the annual service contract payment of DKK 2.0 million. In autumn 2015, this was entered into for the period 2016-2019. In December 2017, this dialogue resulted in the drawing up of an addendum to the original service contract, under which Neqi now receives an additional DKK 2.0 million annually in service contract payment.

The annual service contract payment thus currently amounts to DKK 4.0 million up to and including 2019.

On the basis of the company’s current level of activity and business base, it is estimated that the current service contract payment is sufficient to allow the company to generate the necessary earnings and cash flow to reduce its bank debt.

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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.

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.

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.

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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.

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.

Payment from the national treasury for social tasks This includes payments from the Government of Greenland for community tasks, in the amounts approved in the annual state budget.

64

Other operating income Other operating income encompasses 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.

Depreciation and write-downs Depreciation and write-downs of property, plant and equipment consists of depreciation and writedowns during the financial year, calculated on the basis of the residual values and useful lives of the individual assets and implemented impairment tests, and gains and losses on the sale of property, plant and equipment.

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 recognised 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.

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.

65

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

Property, plant and equipment are written down to the recoverable amount, if this is lower than the book value.

Gains and losses on disposal of property, plant and equipment are 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 66

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 consists of the purchase price plus transportation costs. The cost price of finished goods and work in progress consists of the cost of raw materials, consumables, direct wages and indirect production costs.

Indirect production costs consist of indirect materials and wages, maintenance and depreciation costs for production machinery, factory buildings and equipment, plus costs for factory management and administration. Financial 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.

Prepayments Accruals recognised under assets include costs incurred for subsequent financial years. Prepayments are valued at cost price.

Cash holdings Cash holdings comprise cash and bank balances.

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.

67

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 received from customers Prepayments received from customers comprise amounts received from customers prior to the delivery time.

Accruals Accruals recognised under liabilities include receivables recognised in subsequent financial years.

Accruals 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 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 68

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 2015’ of the Danish Society of Financial Analysts.

EBIT margin (%)

=

EBIT x 100 Net revenue

Return on capital employed (ROCE)

=

EBITDA x 100 Invested capital

Net revenue / Invested capital

=

Net revenue Invested capital

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

69

Income statement 1. april 2017 - 31. marts 2018 Parent Company Note

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

1

2 3

Gross earnings

Group

2018

2017

2018

2017

(tkr.)

(tkr.)

(tkr.)

(tkr.)

2.404.308

2.350.623

2.428.177

2.367.372

31.545 76.565 (1.902.282) (164.566)

36.000 79.803 (1.856.784) (172.242)

36.836 76.827 (1.912.349) (163.664)

38.000 79.795 (1.859.468) (171.386)

445.570

437.400

465.826

454.313

Costs of employment Depreciation and write-down Earnings before financials

4 9,10

(251.575) (40.612) 153.383

(242.327) (56.100) 138.973

(262.199) (44.967) 158.660

(251.588) (60.528) 142.197

Results of affiliates Result of associate company Financial income Financial expenses

5

1.148 (20.000) 2.551 (35.416)

(191) (40) 2.531 (37.756)

(20.000) 1.114 (36.333)

(40) 1.277 (40.079)

101.666

103.517

103.441

103.355

(32.330)

(32.919)

(33.896)

(32.651)

69.336

70.598

69.545

70.704

-

-

(209)

(106)

Earnings for the year

69.336

70.598

69.336

70.598

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

20.000 1.148 48.188 69.336

20.000 (191) 50.789 70.598

20.000 0 49.336 69.336

20.000 50.598 70.598

6 7

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

70

Balance Sheet 31. marts 2018 Parent Company

Group

Assets Note

Software Intangible fixed assets

2018

2017

2018

2017

(tkr.)

(tkr.)

(tkr.)

(tkr.)

9

31.150 31.150

34.400 34.400

31.150 31.150

34.400 34.400

10

335.294 282.172 74.650 145.838 837.954

335.537 296.334 73.782 77.518 783.171

469.432 284.219 81.870 147.041 982.563

472.952 298.547 81.810 77.518 930.828

11

12.809 579 13.388

11.660 609 12.269

579 579

609 609

Total fixed assets

882.492

829.840

1.014.292

965.837

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

3.690 0 565.304 363.828 932.822

1.899 0 562.634 430.905 995.437

3.690 14.687 571.721 363.828 953.926

1.899 13.654 569.395 430.905 1.015.852

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

77.569 1.024 0 69.298 27.189 24.973 49.362 249.415

60.580 0 0 0 114.169 8.447 38.014 221.210

81.034 4.441 69.298 27.189 25.122 49.390 256.474

61.796 4.847 0 114.169 8.589 38.033 227.434

1.494

215

1.494

215

Total current assets

1.183.731

1.216.862

1.211.894

1.243.501

Total assets

2.066.223

2.046.702

2.226.186

2.209.338

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

Cash and cash equivalents

14

-

-

71

Balance Sheet 31. marts 2018 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 Aside for the balance of associate company Total provisions Mortgages Other credit institutions Long-term debt Short-term part of long-term debt Credit institutions Suppliers of goods and services Payables to affiliated companies Prepayments from customers Company tax Other debt Interest hedging Product hedging Accruals Short term debt

14

15

16

Total current liabilities Total liabilities

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

2018

2017

2018

2017

(tkr.)

(tkr.)

(tkr.)

(tkr.)

310.000 8.733 283.163 593.702 20.000 1.215.598

310.000 7.585 283.163 440.407 20.000 1.061.155

310.000

310.000 -

-

283.163 602.435 20.000 1.215.598

283.163 447.992 20.000 1.061.155

1.303

1.094

-

-

78.147 20.000 98.147

28.631 0 28.631

81.251 20.000 101.251

30.925 0 30.925

0 550.000 550.000

0 0 0

47.794 550.000 597.794

50.416 0 50.416

0 0 89.925 0 0 22.498 42.906 40.935 0 6.214 202.477

0 556.597 114.345 3.035 0 25.007 43.856 57.373 146.035 10.667 956.916

2.623 102.047 90.862 0 22.846 44.713 40.935 0 6.214 310.240

2.623 655.958 115.499 19 25.007 45.397 57.373 146.035 17.839 1.065.749

752.477

956.916

908.034

1.116.165

2.066.223

2.046.702

2.226.186

2.209.338

-

17 18 13 20 21

72

Equity 31 March 2016

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

7.776

165.995

283.163

20.000

786.934

0 0 0 0 0

(191) 0 0 0 0

50.789 0 0 6.360 217.263

0 0 0 0 0

0 20.000 (20.000) 0 0

50.598 20.000 (20.000) 6.360 217.263

310.000

7.585

440.407

283.163

20.000

1.061.155

0 0 0 0 0

1.148 0 0 0 0

48.188 0 0 6.360 98.747

0 0 0 0 0

0 20.000 (20.000) 0 0

49.336 20.000 (20.000) 6.360 98.747

310.000

8.733

593.702

283.163

20.000

1.215.598

After-tax earnings for the year Proposed dividends for the financial year Dividends paid Tax value of dividends Adjustments - derivatives Equity 31 March 2017 After-tax earnings for the year Proposed dividends for the financial year Dividends paid Tax value of dividends Adjustments - derivatives Egenkapital 31. marts 2018

Equity 31 March 2016 After-tax earnings for the year Proposed dividends for the financial year Dividends paid Tax value of dividends Adjustments - derivatives Equity 31 March 2017 After-tax earnings for the year Proposed dividends for the financial year Dividends paid Tax value of dividends Adjustments - derivatives Egenkapital 31. marts 2018

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

173.772

283.163

20.000

786.934

0 0 0 0 0

0 0 0 0 0

50.598 0 0 6.360 217.263

0 0 0 0 0

0 20.000 (20.000) 0 0

50.598 20.000 (20.000) 6.360 217.263

310.000

0

447.992

283.163

20.000

1.061.155

0 0 0 0 0

0 0 0 0 0

49.336 0 0 6.360 98.747

0 0 0 0 0

0 20.000 (20.000) 0 0

49.336 20.000 (20.000) 6.360 98.747

310.000

0

602.435

283.163

20.000

1.215.598

73

Cash flow statement for the group 1. april 2017 - 31. marts 2018

Note

Earnings before financials Depreciation and write-down

2018

2017

(tkr.)

(tkr.)

158.660 44.967

142.197 60.528

(22.167) 181.460

(11.480) 191.245

1.114 (17.728) (18.605) (25.007) 121.234

1.277 (17.556) (22.523) (24.520) 127.923

(110.604) 17.153

(102.363) 3.374

30

0

Cash flows from investing activities

(93.421)

(98.989)

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

(20.000) (2.623) (22.623)

(20.000) (17.069) (37.069)

Increase/decrease in cash and cash equivalents

5.190

(8.135)

(655.743) (650.553)

(647.608) (655.743)

1.494 (652.047) (650.553)

215 (655.958) (655.743)

Working capital changes Cash flows from ordinary operating activities Interest income and similar income Interest expenses and similar income Interest hedging Company tax Cash flows from operating activities Acquision of property, plant and equipment Sale of property, plant and equipment Lending, fixed asset investments

Cash funds primo Cash funds ultimo

Cash funds ultimo Cash funds ultimo Credit institutions

19

74

Notes Parent Company

Group

2018

2017

2018

2017

(tkr.)

(tkr.)

(tkr.)

(tkr.)

1 Net revenues Goods Liquid fuels etc Pisisa Neqi Rental income

1.361.684 1.040.695 1.929 0 0

1.332.967 1.015.762 1.893 0 0

1.361.684 1.040.695 1.929 23.395 474

1.332.967 1.015.762 1.893 16.345 404

2.404.308

2.350.623

2.428.177

2.367.372

23.692 28.299 15.677 5.130 300 3.466

25.753 27.976 17.194 5.040 300 3.540

23.692 28.662 15.677 5.130 0 3.665

25.753 28.357 17.194 5.040 (0) 3.451

76.565

79.803

76.827

79.795

12.281 7.269 14.681 10.270 6.106 19.354 5.984 52.308 20.938 13.914 1.460

12.108 9.051 14.819 10.495 6.921 20.905 5.412 56.928 20.756 14.605 241

12.401 7.276 14.681 10.383 6.222 20.043 6.019 56.080 21.456 7.713 1.390

12.143 9.061 14.822 10.663 7.231 21.465 5.418 60.534 21.145 8.782 123

164.566

172.242

163.664

171.386

223.739 15.678 12.158 251.575

214.562 14.596 13.170 242.327

233.766 16.167 12.266 262.199

223.417 15.032 13.139 251.588

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 Operation and maintenance of 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

1.392

1.401

3.175 263 3.438

2.990 251 3.241

728

731

759

760

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

75

Notes Parent Company

Group

2018

2017

2018

2017

(tkr.)

(tkr.)

(tkr.)

(tkr.)

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

983 867 1.257 (1.959)

499 (1.736) 551 495

(0) 1 (0) (0)

0 0 0 0

1.148

(191)

1

0

400 713 1.438

471 691 1.370

400 714 0

471 806 0

2.551

2.531

1.114

1.277

10.696 0 0 18.605 6.115

9.877 0 0 22.523 5.356

10.833 756 23 18.605 6.116

9.890 1.776 450 22.523 5.439

35.416

37.756

36.333

40.079

22.498 9.832

25.007 7.912

22.846 11.050

25.007 7.644

32.330

32.919

33.896

32.651

6 Financial income Interest income - contract of sale Interest income - bank Intra-Group interest

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

76

Notes 9 Intangible fixed assets

Software

Parent Company

(tkr.)

Cost 1. april 2017 Additions during the year Transferred from investment in progress Disposals during the year

124.599 0 2.317 0

Cost 31. March 2018

126.916

Depreciations and write-downs 1. april 2017 Depreciations and write-downs of the year Depreciations at write-downs divested assets

90.199 5.567 0

Depreciations and write-downs 31. March 2018

95.766

Book value 31. March 2018

31.150

Book value 1. april 2017

34.400

9 Inangible fixed assets (continue)

Software

Group

(tkr.)

Cost 1. april 2017 Additions during the year Transferred from investment in progress Disposals during the year

124.599 0 2.317 0

Cost 31. March 2018

126.916

Depreciations and write-downs 1. april 2017 Depreciations and write-downs of the year Depreciations at write-downs divested assets

90.199 5.567 0

Depreciations and write-downs 31. March 2018

95.766

Book value 31. March 2018

31.150

Book value 1. april 2017

34.400

77

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 2017 Regulation primo Additions during the year Transferred from investment in progress Disposals during the year

631.591 0 16.421 (6.496)

628.990 (59.691) 0 4.886 0

378.078 (10.241) 0 17.353 (4.422)

77.518 109.297 (40.977) 0

1.716.177 (69.932) 109.297 (2.317) (10.918)

Cost 31. March 2018

641.516

574.185

380.768

145.838

1.742.307

Depreciations and write-downs 1. april 2017 Regulation primo Depreciations and write-downs of the year Depreciations at write-downs divested assets

296.054

304.295 (10.241) 16.401 (4.338)

0

13.468 (3.300)

332.655 (59.691) 19.048 0

0 0

933.006 (69.932) 48.917 (7.638)

Depreciations and write-downs 31. March 2018

306.222

292.012

306.117

0

904.353

Book value 31. March 2018

335.294

282.172

74.650

145.838

837.954

Book value 1. april 2017

335.537

296.334

73.782

77.518

783.171

Depreciation and write-down Depreciation and write-downs for the year: 2018 (tkr.)

Property Plant and machinery Other fixtures and fittings Loss/gain on sale of fixed assets Depreciation and write-downs total

2017 (tkr.)

13.468 19.048 16.401 (13.872)

7.070 20.390 20.616 (1.393)

35.045

46.683

78

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 2017 Regulation primo Additions during the year Transferred from investment in progress Disposals during the year Cost 31. March 2018

790.204 0 0 16.421 (6.496) 800.129

647.776 (59.691) 104 4.886 0 593.075

389.627 (10.241) 0 17.353 (4.422) 392.317

77.518 0 110.500 (40.977) 0 147.041

1.905.126 (69.932) 110.604 (2.317) (10.918) 1.932.563

Depreciations and write-downs 1. april 2017 Regulation primo Depreciations and write-downs of the year Depreciations at write-downs divested assets Depreciations and write-downs 31. March 2018

317.253 0 16.745 (3.300) 330.698

349.231 (59.691) 19.318 0 308.858

307.814 (10.241) 17.209 (4.338) 310.444

0 0 0 0

974.299 (69.932) 53.272 (7.638) 950.001

Book value 31. March 2018

469.432

284.219

81.870

147.041

982.563

Book value 1. april 2017

472.952

298.547

81.810

77.518

930.828

Depreciation and write-down Depreciation and write-downs for the year: 2018 (tkr.)

Property Plant and machinery Other fixtures and fittings Loss/gain on sale of fixed assets Depreciation and write-downs total

2017 (tkr.)

16.745 19.318 17.209 (13.872)

10.353 20.753 21.398 (1.393)

39.400

51.111

79

Notes 11 Financial fixed assets

Total

Deposits

Holdings in affiliates

Holdings in associated company

Kapitalandele i øvrigt

Parent Company

Cost 1. april 2017 Additions during the year Disposals during the year Cost 31. March 2018

0 0 0 0

40 0 0 40

8.792 0 0 8.792

1.145 39 (69) 1.115

9.977 39 (69) 9.947

Adjustments 1 april 2017 Additions during the year Disposals during the year Profit share Adjustments 31. March 2018

0 0 0 0 0

(40) 0 0 0 (40)

2.490 0 0 3.107 5.597

(536) 0 0 0 (536)

1.914 0 0 3.107 5.021

Internal profits early 1. april 2017 Regulation primo Displacement of internal profits Internal profits 31. March 2018

0 0 0

0 0 0 0

377 (1.873) (85) (1.581)

0 0 0 0

377 (1.873) (85) (1.581)

Book value 31. March 2018

0

0

12.809

579

13.387

Book value 1. april 2017

0

0

11.660

609

12.269

Equity in % Home

2018

2017

Kommuneqarfik Kujalleq Qeqqata Kommunea Qeqqata Kommunea

100 82,5 100

100 82,5 100

Home

2018

2017

50

50

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

Equity in % Associated company consists of the following Pitsaasut ApS

NĂŚstved Kommune

Company capital (tkr.)

600 3.000 1.000 Company capital (tkr.)

80

Equity 31/3 2018 (tkr.)

4.324 7.443 3.925 Equity 31/12 2017 (tkr.)

(26.273)

80

Notes 11 Financial assets (continue)

Holdings in associated company

Deposits

Total

Group

(tkr.)

(tkr.)

(tkr.)

Cost 1. april 2017 Additions during the year Disposals during the year Cost 31. March 2018

40 0 0 40

1.145 39 (69) 1.115

1.185 39 (69) 1.155

(40) 0 0 0 (40)

(536) 0 0 0 (536)

(576) 0 0 0 (576)

Book value 31. March 2018

0

579

579

Book value 1. april 2017

0

609

609

Adjustments 1 april 2017 Additions during the year Disposals during the year Profit share Adjustments 31. March 2018

2018

2017

(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

2018

2017

(tkr.)

(tkr.)

Change in total (tkr.)

69.298 (40.935) 27.189 55.552

(146.035) (57.373) 114.169 (89.239)

215.333 16.438 (86.980) 144.791

0

0

0

0

0

0

(17.666)

28.378

(46.044)

37.886

(60.861)

98.747

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

81

Notes 14 Deferred tax Parent Company

Book value

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

335.294 282.172 105.800 13.388

736.654

Value for tax purposes

Difference in the balance

214.312 244.912 60.446 9.947 6.000 10.840 546.457

120.982 37.260 45.354 3.441 (6.000) (10.840) 190.197

Deferred tax 31. marts 2018, 31,8% Deferred tax on equity items, see note 13 Provisions deferred tax 31. marts 2018

60.481 17.666 78.147

Group

Book value

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

469.432 282.172 115.067 13.388

27 880.086

Value for tax purposes

Difference in the balance

345.806 244.912 76.588 9.947 6.000 10.840 0 694.093

Deferred tax 31. marts 2018, 31,8% Deferred tax on equity items, see note 13 Provisions deferred tax 31. marts 2018

123.626 37.260 38.479 3.441 (6.000) (10.840) 27 185.993 59.146 17.666 76.810

The change in the deferred tax is put together as follows: Parent Company 2018 (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 Recognized as follows: Assets Liabilities

Group

2017

2018

2017

(tkr.)

(tkr.)

(tkr.)

28.631 9.832 46.044 0 (6.360) 78.147

(74.225) 7.912 101.304 0 (6.360) 28.631

26.078 11.050 46.044 0 (6.360) 76.810

(76.511) 7.644 101.304 0 (6.360) 26.078

0 (78.147) (78.147)

0 (28.631) (28.631)

4.441 (81.251) (76.810)

4.847 (30.925) (26.078)

82

Notes 15 Long-term debt Parent Company

Due within 1 year

Due after 1 year

Amortized debt in total

Nominel debt in total

(tkr.)

(tkr.)

(tkr.)

(tkr.)

Credit institutions

0 0

Due after more than 5 years Credit institutions

550.000 550.000

550.000 550.000

550.000 550.000

550.000 47.794 597.794

652.047 50.417 702.464

652.047 50.417 702.464

0 0

Group

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

102.047 2.623 104.670 0 36.919 36.919

Parent Company

Group

2018

2017

2018

2017

(tkr.)

(tkr.)

(tkr.)

(tkr.)

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

19.562 6.593 16.751 42.906

18.427 6.692 18.737 43.856

20.217 7.032 17.464 44.713

18.998 6.913 19.486 45.397

17 Contingent liabilities, other financial commitments and guarantees 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. Similarly the parent company has guaranteed the associated company Pitsaasut ApS's debt to Jyske Bank.

The associated company Pitsaasut ApS has an underbalance of DKK 26.3 million according to the draft of the Financial Statement for 2017, in which the KNI has estimated that a provision amounting to DKK 20.0 million should be included. DKK. The remaining 6.3 million. DKK is a contingent liability which KNI estimates that Pitsaasut itself will be able to recover.

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.

83

Notes 2018

2017

2018

2017

(tkr.)

(tkr.)

(tkr.)

(tkr.)

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

617 188

610 673

728 248

711 692

805

1.283

976

1.403

61.926 (47.128) (36.965)

(46.796) 20.378 14.938

(22.167)

(11.480)

19 Working capital changes Change in inventories Change in receivables Change in trade payables and other payables, etc

20 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

Høgni Hansen Najarak Christiansen Bodil Nyboe Andersen Annette K. Sadolin Søren Jakobsen Mikol Poulsen Dorthea Isaksen Kristian Stach Olsen

3800 Thorshavn 3905 Nuussuaq 1270 København K 2900 Hellerup 2950 Vedbæk 3911 Sisimiut 3911 Sisimiut 3921 Narsaq

Chairman Board member Board member Board member Board member Board member Board member Board member

Peter Grønvold Samuelsen

3911 Sisimiut

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 39,1 million. DKK

21 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

Bodil Nyboe Andersen

Kirstein Holding A/S - chairman Kirstein A/S - chairman Kirstein Agg. Holding A/S - chairman Spektrum Fondsmæglerselskab A/S - chairman

Annette K. Sadolin

Topdanmark A/S - Vice Chairman Topdanmark forsikring A/S - board member DSV A/S - board member DSB - Vice Chairmann

Søren Jakobsen

Thuesen Jensen A/S - board member Johansson A/S - chairman

84

Income statement 1. april 2017 - 31. marts 2018 Goods Division 2018

2017

1.363.613

1.334.861

31.545 66.654 (1.026.136) (164.682)

36.000 69.251 (1.018.150) (175.284)

270.994

246.678

Costs of employment Depreciation and write-down

(171.757) (15.156)

(164.030) (25.292)

Earnings before financials

84.081

57.357

398 (2.467) (15.600)

467 (2.952) (16.601)

66.412

38.271

924.950

919.109

50.997

77.989

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

Balance Sheet 31. marts 2018 Goods Division For the segment accounts of the goods division, the following assets and liabilities can be directly attributed: Total assets Total liabilities

85

Income statement 1. april 2017 - 31. marts 2018 Energy Division 2018

2017

1.040.695

1.015.762

2.587 (876.145) (42.417)

2.631 (838.634) (43.497)

Gross earnings

124.720

136.262

Costs of employment Depreciation and write-down

(32.783) (22.641)

(33.239) (21.458)

Earnings before financials

69.296

81.565

0 (150) (15.039)

0 (138) (15.951)

54.107

65.477

930.198

967.676

18.700

164.504

Net revenues Other operating income Consumables Other external costs

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

Balance Sheet 31. marts 2018 Energy Division For the segment accounts of the energy division, the following assets and liabilities can be directly attributed: Total assets Total liabilities

86

Income statement 1. april 2017 - 31. marts 2018 Staffs 2018 Other operating income Other external costs

2017

7.021 42.835

7.622 46.838

49.856

54.460

Costs of employment Depreciation and write-down

(47.035) (2.814)

(45.058) (9.351)

Earnings before financials

7

51

31.792 (31.799)

34.616 (34.667)

0

0

Gross earnings

Financial income Financial expenses Pre-tax earnings for the year

Balance Sheet 31. marts 2018 Staffs For the segment accounts for staffs, the following assets and liabilities that are not directly related to the goods division or the energy division may be attributed to: Total assets

211.075

159.917

Total equity

1.215.598

1.061.155

780.928

743.054

Total liabilities

87

Income statement 1. april 2017 - 31. marts 2018 Affiliated companies 2018

2017

Results of affiliates Provision for losses at affiliates

1.148 0

(191) 0

Pre-tax earnings for the year

1.148

(191)

Balance Sheet 31. marts 2018 Affiliated companies For the segment accounts of the affiliateds, the following assets and liabilities can be directly attributed: Total assets Equity minority interests Total liabilities

159.963

162.636

1.303

1.094

158.660

161.542

88