The LFV Group. Swedish Airports and Air Navigation Services

Transcription

1 The LFV Group Swedish Airports and Air Navigation Services Annual Report 2006

2 The year in brief Highlights Operating revenue, 2006, SEK M Civil aviation revenue 3,877 (3,712) Commercial revenue 1,981 (1,822) Other operating revenue 122 (149) Expenses and profit, 2006, SEK M Profit after financial items 447 (238) Depreciation/ amortisation 1,187 (1,188) Net financial items etc. 293 (313) Staff expenses Various extemal expenses SEK M 2,500 2,138 (2,079) 1,915 (1,866) Capital spending, Air traffic (000) Number of landings Number of passengers 29,601 28,837 Cargo and mail forwarded (tonnes) Financial data (SEK M) Income statement Operating revenue 5,980 5,683 Operating expenses -5,240 5,132 Profit on holdings in associated companies -9 7 Operating profit Financial income Financial expenses Profit after financial items Income tax and tax equivalent Minority share -6-5 Profit for the year Balance sheet Fixed assets 13,491 13,865 Current assets 1,149 1,099 Equity 3,437 3,130 Deferred tax, provisions and long-term liabilities etc. 9,724 9,833 Current liabilities 1,478 2,001 Total assets 14,640 14,964 Miscellaneous Capital spending ,000 1,500 1, Financial ratios, % Liquidity ratio Equity/assets ratio Return on equity (after income tax and tax equivalent) 9 5 Return on capital employed 6 4 Return on total assets 5 4 Staff Number of full-time equivalent employees 3,418 3,489 Antal Number passagerare of passengers och luftrumsrörelser and airspace movements, Millions of passengers Thousands of movements International passengers Domestic passengers Other airspace movements Overflights of Swedish airspace The year in brief > LFV 2006 <

3 This is LFV The LFV Group consists of the State enterprise (Luftfartsverket) and its subsidiaries and associated companies. During 2006 as a whole, LFV operated 17 airports and was responsible for air navigation services in Sweden. LFV reported sales of SEK 6.0 billion during Its profit after financial items was SEK 447 M. At year-end, the number of employees was 4,054. Our mission is to generate added value for our customers and promote air travel by operating cost-effective, safe and well managed airports and air navigation services. Our vision is that our customers shall single out LFV s airports and air navigation services as a good example when it comes to cost-effectiveness, safety and functionality. During 2006, a total of 29,600,782 passengers travelled through our airports, where 278,453 landings took place. Our revenue comes predominantly (65 per cent) from charges attributable to air traffic at our airports and from traffic that passes through Sweden s airspace. Our other revenue (35 per cent) comes from airport shops, parking spaces, conference facilities, restaurants and so on. Shops, restaurants and so on are run by tenants and business partners, while parking spaces are mainly run under our own auspices. LFV Group Internal Auditing Stockholm Group Division Airports Division Air Navigation Services Division Scheduled European air services A number of low fare airlines opened new destinations: - FlyMe opened 12 new destinations from Göteborg-Landvetter Airport during the first half of Ryanair expanded services from Malmö Airport by adding three new routes to Barcelona, Marseille and Madrid. Heavy air cargo servic Stockholm-Arlanda Airport gained three new destinations: - Hong Kong, - Seoul and - Taipei. Jönköping Airport gained its first air cargo routes. Intercontinental passenger routes Stockholm-Arlanda Airport gained two new American non-stop destinations: - Philadelphia and - Boston. Air charter For the first time, Norrland (northern Sweden) gained intercontinental air charter service in the form of departures to Thailand from - Luleå Airport and - Umeå Airport. Flight connections with Iraq were resumed in the form of charter traffic to Erbil. Climate neutrality LFV has halved carbon dioxide emissions from its own operations. Its target for the period is to reduce emissions by a further 4 per cent annually on average. LFV offsets its own remaining carbon dioxide emissions by supporting projects that reduce or offset carbon dioxide emissions through: - planting of trees in Costa Rica - bioenergy production in South Africa - wind power stations in China. During 2006, Swedavia AB* carried out projects in the following countries and regions, among others: - Kosovo: Upgrading the airport in Pristina to international standards. - Iraq: Training staff before a new airport went into service in Erbil. - Bhutan and Ghana: Improving the civil aviation sectors in these countries. - India: Planning the development of 6 regional airports. - Indonesia: Helping decentralise the country s civil aviation sector. - Mongolia: Improving the country s civil aviation sector. - United Arab Emirates: Training of air traffic controllers. *Swedavia markets and sells LFV s know-how abroad. > LFV 2006 < This is LFV

4 BOARD OF DIRECTORS Director General DG s Office Group staff units LFV Internal A-Banan Holding AB service units Projekt AB AIRPORTS (17) Stockholm Division Stockholm-Arlanda Stockholm-Bromma Group Airports Division Göteborg-Landvetter Jönköping Kalmar 3 Karlstad Kiruna Luleå 4 Malmö Ronneby 4 Skellefteå Sundsvall-Härnösand Umeå Visby Ängelholm-Helsingborg Önsköldsvik Åre Östersund AIR NAVIGATION SERVICES Air Navigation Services (ANS) Division ATS units 1 (35) Stockholm-Arlanda Arvidsjaur Borlänge Stockholm-Bromma Halmstad Jönköping Kalmar Karlstad Kiruna Kristianstad Göteborg-Landvetter Ljungbyhed Luleå 4 Malmen/Linköping Malmö Norrköping Ronneby 4 Saab/Linköping Skavsta/Nyköping Skellefteå Sundsvall-Härnösand Såtenäs Säve/Göteborg Söderhamn Trollhättan Umeå Uppsala Vidsel Visby Västerås Växjö Ängelholm-Helsingborg Örebro Örnsköldsvik Åre Östersund AIR TRAFFIC CONTROL CENTRES 2 (2) Malmö Stockholm-Arlanda LFV airports 1 LFV provides local air traffic control services at 35 airports. ATS units 2 Air traffic control centres are responsible for air traffic management in airspace outside airport areas. Control centres 3 The airport was transferred to a new owner on January 1, Head office, Norrköping 4 LFV is responsible for civil aviation at the airport through an agreement with the Swedish Armed Forces. This is LFV > LFV 2006 <

5 Contents The year in brief This is LFV Contents Front flap Front flap Accounting principles Comments of the Director General 2-3 Important events in LFV Group objectives and strategies 5-7 Director General Airports 8-15 Air Navigation Services The environment Human resources and leadership Accounts 26 Income statements Balance sheets Funds statements Notes Group objectives and strategies Performance report according to the annual appropriations directive for LFV Multi-year overview Proposed dividend Definitions Auditors Report 53 8 Board of Directors and Auditors Group Management 56 Addresses Cover Airports 44 Charts, tables Number of passengers, European routes 8 Passenger growth, largest national airports Traffic charges Airport revenue Airport statistics, Punctuality, domestic and international traffic 46 Emissions per passenger, LFV operations Ten-year summary Performance report according to annual appropriations directive for LFV Contents > LFV 2006 < 1

6 Comments of the Director General Doubled earnings for LFV in 2006 LFV reported good earnings in We lived up to our target of return on equity above 8 per cent. Profit was SEK 447 M, compared to SEK 238 M in Revenue rose by 5 per cent to SEK 5,980 M, not least because our efforts to boost commercial revenue have borne fruit. Expenses increased by 2 per cent to SEK 5,240 M and the number of passengers by 3 per cent to more than 29 million. To LFV, it is important to keep down prices paid by the airlines, so we carried out a price reduction on January 1, Among the purposes of this reduction, totalling nearly SEK 100 M, is to support continued growth in the number of nonstop routes at our international airports. We are spending SEK 15 M on projects to stimulate greater inbound tourism. The money will be used for joint business projects with tourism organisations, regional agencies and other partners to market Sweden, there by generating better business potential for airports. In 2006, LFV received the Eagle Award as the world s best provider of air navigation services. The reasons were that we managed to keep our costs down, streamline operations and at the same time maintain first-rate service. Air traffic trends International travel at LFV airports continued its robust growth. During 2006, it rose by 7 per cent to more than 16 million passengers, which is the highest figure ever. LFV believes there will be continued strong demand for international travel. The number of domestic passengers declined during the year by 2 per cent. Total passenger numbers are still below the peak figures from The domestic market is showing signs of saturation. For short distances, other modes of transport have improved their competitiveness. This is why LFV withdrew from three airports Halmstad, Norrköping and Kalmar during the year. LFV believes that a few additional airports should preferably be operated by municipal and regional bodies and looks forward to a clarification of the Swedish State s responsibility for the structure of airports by the Governmentappointed inquiry on airports. In 2006, the number of landings decreased by 3 per cent to just below 220,000. However, the number of airspace movements rose by 4 per cent to more than 680,000, which is almost at the level of the peak year The number of overflights rose by 12 per cent during 2006, accounting for the large increase. There is growing demand for air cargo. Several new cargo routes were added at our airports in Stockholm, Gothenburg and Malmö. A new postal terminal was inaugurated at Stockholm- Arlanda Airport during the year. At Malmö Airport, ground was broken in January 2007 for a cargo terminal. The airport attracted several new routes and has become an exciting challenger for both air cargo and low fare air travel in the Öresund region of southern Sweden and eastern Denmark. Environmental impact of aviation During autumn 2006, there was lively debate on climate change and the greenhouse effect. The role of civil aviation was singled out. It may be worth pointing out that civil aviation accounts for 2-3 per cent of global carbon dioxide emissions. LFV welcomes the EU s proposal that civil aviation should be part of its emission trading scheme (ETS). For an international industry like civil aviation, it is important that taxes and charges are not introduced in isolation by one country. LFV has cut emissions from its own operations by more than half in the space of a few years. We are continuing the task of reducing our emissions but have also decided to offset the remaining emissions by supporting projects in other countries in accordance with the flexible mechanisms offered in the Kyoto Protocol. Since 2006, LFV has been Sweden s first carbon neutral company. 2 > LFV 2006 < Comments of the Director General

7 The Air Navigation Service works continuously to make flights paths as straight as possible. This saves fuel and is thus both environmentally and financially beneficial. Another step to make flying more environmentally sound is green flights. During 2006 there were about 800 such flights to Stockholm- Arlanda Airport. The concept is presented in greater detail on page 18. Emission ceiling should be re-assessed In compliance with environmental legislation, Sweden s airports undergo a permitting process. There are normally conditions regarding the number of airspace movements allowed. At Stockholm-Arlanda Airport, there is also an emission ceiling, which includes passengers trips to and from the airport. Since it was created, the railway to Stockholm- Arlanda Airport has accounted for a large proportion of trips to the airport, but many people still choose to drive their car. The dilemma of the emission ceiling is that LFV cannot control all emissions covered by the ceiling.the ceiling is also questionable from an environmental standpoint. Shifting travel to other airports will hardly improve the environment. Studies that have been conducted instead point towards higher atmospheric emissions and discharges into the soil. LFV has thus requested a re-assessment of these conditions. Public transport plays a key role at Stockholm-Arlanda Airport. LFV is also pushing for good public transport to other airports. Malmö Airport has proposed a bus solution using an existing railway station, while awaiting a fixed rail connection. Göteborg-Landvetter Airport is planning a rail connection tying together the airport with Borås and Gothenburg. Looking at Sweden as a whole, buses are the dominant mode of public transport. They work well, but their operations can be improved, preferably in collaboration with county transport companies, which should play a more active role in supplying public transport to airports. Capital spending During the past three years, our capital spending has been SEK annually. This is substantially lower than in previous periods. The planning framework for the next several years is about SEK 1 billion annually. This includes safety-related investments, traffc investments such as expansion of Pier F at Stockholm-Arlanda Airport and commercial investments such as a new parking structure at Göteborg-Landvetter. Stockholm-Bromma Airport boosted its passenger numbers by 22 per cent to more than 1.6 million in LFV has been tasked with pursuing discussions with the City of Stockholm about the future of civil aviation at Stockholm-Bromma after A decision is important for long-term planning of airport capacity in the Stockholm region. LFV since January 1, 2007 After sixty years as Luftfartsverket, we are changing our name to LFV. This is a natural change after narrowing our task and will avoid confusion with Luftfartsstyrelsen (the Swedish Civil Aviation Authority), which was spun off from us in Our new trademark contains a crown and wings in order to maintain continuity with our past. Over the years, we have worked successfully to satisfy the demands of the aviation industry and of passengers for safe, cost-effective and smoothly functioning airports and air navigation services. We will continue to do this. To me, it is satisfying to be able to declare that civil aviation plays an important role for both the business community and private individuals. It is encouraging that the airlines and LFV, after a few diffcult years, are again operating mainly in the black. I would like to conclude by thanking all our employees for a job well done during Lars Rekke, Director General Comments of the Director General > LFV 2006 < 3

8 Important events in 2006 Sharply improved profit: SEK 447 M in 2006 compared to SEK 238 M in The increasing number of passengers, greater cost effciency but also improved earnings from LFV s commercial ventures led to sharply improved profit. LFV also surpassed its targeted return on equity after tax equivalent, 8 per cent. The return in 2006 was 9 per cent. LFV cutting prices by SEK 100 M. At the beginning of 2007, LFV is carrying out its largest price cut ever, covering international traffic from Stockholm-Arlanda Airport and Göteborg-Landvetter Airport. It is also investing about SEK 15 M to promote inbound tourism, in order to strengthen business at a number of airports. Capital spending was SEK 812 M, somewhat higher than in Capital spending was SEK 812 M during 2006, compared to SEK 785 M in The renovation of Terminal 5 at Stockholm-Arlanda Airport was completed, improving service by expanding the choice of shops and restaurants. Together with Denmark s Naviair, Ireland s IAA and supplier Thales, LFV initiated a joint project to improve and upgrade the air traffc management system. LFV changes trademark. Luftfartsverket changed its name to LFV at the beginning of The reasons are the narrowing of LFV s role, increased internationalisation and a desire to avoid confusion with Luftfartsstyrelsen (the Swedish Civil Aviation Authority). The new trademark will serve as a guarantee and seal of quality for LFV s operations and for the portfolio of trademarks developed for its airports and air navigation services. LFV a climate neutral company. LFV has halved its carbon dioxide emissions and is continuing efforts to reduce them further. Remaining emissions are being offset by contributions for tree planting in Costa Rica, wind power in China and biofuel-based heat production in South Africa. LFV is working actively to reduce the environmental impact of its operations and supports proposals that civil aviation should be included in international emission trading. Fewer LFV airports during Operations at Halmstad Airport were taken over by the Municipality of Halmstad on January 1, Norrköping Airport was transferred to the Municipality of Norrköping on July 1, 2006 and Kalmar Airport to the Municipality of Kalmar on January 1, This left LFV with a portfolio of 16 airports. Stockholm-Bromma Airport celebrating its 70th birthday. Seventy-year-old Stockholm-Bromma Airport is Sweden s fourth largest airport, with 1,634,310 passengers during 2006, an increase of no less than 22 per cent. LFV s agreement with the City of Stockholm for the airport expires in Given today s short agreement period and uncertainty about the future, it is diffcult to project the benefits of important investments. LFV has been assigned, via its 2007 annual appropriations directive, to initiate discussions with the City of Stockholm on future operations at Stockholm-Bromma. Government considers making LFV a limited liability company In her current inquiry into the Swedish State s responsibility for the country s airports, investigator Christina Rogestam has been asked to present proposals for a new financing model for the entire civil aviation sector and analyse travel by air, rail and bus. The government s supplementary instructions for the inquiry also request that she present supporting documentation for a possible decision to turn LFV into a limited liability company. 4 > LFV 2006 < Important events in 2006

9 LFV Group objectives and strategies LFV s strategic change process Finances > > > Does not achieve owner s financial Achieves owner s profitability target. Financial stability and capacity to cope targets. Positive cash flow and reduced need with major changes in the business Lack of profitability and negative for borrowing. environment. cash flow. Sustainable development > > > Environment regarded as an expense item. Increased environmental awareness Working towards sustainable Weak public image. and focus on environmental issues. development for LFV airports Improved communications with and the Air Navigation Service. neighbours and general public. Acceptance of operations among neighbours and general public. Airports > > > Rising expenses and prices Greater productivity and lower prices. The highest customer added value In a Nordic perspective, in the Nordic countries. expenses and prices still high. Competitive prices and high product quality. Commercial products > > > In international terms, Positive development for commercial Profit from commercial products is at weak commercial operations. products, among other things through the level of equivalent operations Underutilised commercial potential. partnerships. abroad. Air Navigation Service > > > Increasing expenses and higher prices. Higher productivity and lower prices. Through international collaboration, Old air traffic management system New, modern air traffic management mainly with Nordic air traffic manageclose to its capacity ceiling. system with high capacity and ment organisations, LFV increases the efficiency-raising potential. long-term cost-effectiveness and capacity of air navigation services. LFV Group objectives and strategies > LFV 2006 < 5

10 LFV s mission LFV s vision LFV Group objectives We shall generate added value for our customers and promote air travel by operating cost-effective, safe and well managed airports and air navigation services. Our customers shall single out LFV s airports and air navigation services as a good example when it comes to cost-effectiveness, safety and functionality. The LFV Group has formulated six objectives for the coming planning period, to be achieved by These objectives focus on cost-effectiveness, financial stability, taking advantage of commercial potential and sustainable development. The Government s targets for LFV According to its appropriations directive, LFV shall contribute to the fulfilment of Sweden s transport policy objectives for air travel by assuming responsibility for operating and improving cost-effective, safe and well functioning airports and air navigation services. Target for return on equity The long-term target for return on equity is that profit after tax equivalent shall amount to 8 per cent of equity. In 2006, return on equity amounted to 9 per cent. Target for equity/assets ratio The 2006 target for equity/assets ratio was 25 per cent. At the end of 2006, the equity/assets ratio was 23 per cent. According to LFV s business plan, the target for the equity/assets ratio will be achieved during Restrictions on price increases As a restriction on price increases, traffc charge excluding air navigation charges en route, aviation security charges and noise-related charges may increase by no more than the Net Price Index, measured starting in For several years, LFV has lowered the prices for its infrastructure services. On January 1, 2007 it lowered these prices by about SEK 100 M more. These prices are consequently well below the price ceiling. A performance report, as provided by the appropriations directive, on how the LFV Group s operations have contributed to achieving Sweden s transport policy objectives can be found on pages LFV Group objectives and strategies The Board of Directors of the LFV Group has adopted the Group objectives and strategies below for operating and improving LFV s airports and air navigation services in keeping with its task. Group objective: Financial strength LFV shall fulfil the financial targets established by its owner and at the same time have a financial stability that enables us to cope with recurring changes in traffc volume and traffc structure. Strategies LFV shall maintain strict cost controls and increase its productivity. Benchmarking shall ensure that the financial standards required of LFV s operations are competitive. Utilisation of existing facilities shall be made more effcient, while maintaining safety and security standards, in order to avoid costly new capital spending and ensure long-term profitability. Commercial investments with good profitability will enjoy priority. By fulfilling the return requirements of its owner and being restrictive with capital spending, LFV will lower its debt/ equity ratio in order to create financial sustainability. Target fulfilment: Financial strength The action programme that began in 2001 and was completed in 2006 has provided lasting improvements in earnings totalling SEK 1 billion on an annual basis. Together with lower capital spending and the recovery of the civil aviation market, this improved LFV s financial position. In 2006, LFV fulfilled its owner s target for return on equity for the first time since Low capital spending and improved utilisation of available capacity contributed to positive cash flow and a reduced debt burden. Starting in 2007, LFV also expects to meet its owner s target for the equity/ assets ratio. Group objective: Sustainable development LFV supports sustainable development, where the social and economic effects of its airports and air navigation services are weighed together with environmental aspects. Strategies By sustainable development, we mean that LFV runs credible operations with a long-term approach to environmental impact, economic development and acceptance by employees and neighbours. LFV shall communicate the positive and negative impact of its operations on the economy, the community and the environment in a transparent, clear way. LFV shall work in a systematic, measurable way with steps to improve the environment in order to generate credibility and acceptance of its operations in its surroundings. It shall welcome opinions about its operations in a professional way and in open, on-going dialogue. LFV works continuously to reduce emissions of greenhouse gases and to reduce noise as well as soil and waterway discharges. Target fulfilment: Sustainable development During 2006, LFV began to build a biofuel-fired heat generating plant at Malmö Airport. This measure will help reduce the environmental impact of the airport by eliminating fossil carbon dioxide emissions, compared to current technology. The investment is estimated at SEK 22 M. The plant will be completed during the first half of In 2006, LFV became the first large company in Sweden to become climate neutral. To offset the emissions that still occur, LFV buys emission reduction certificates, that is, participations in projects that lead to equivalent reductions in the carbon dioxide content of the atmosphere. LFV is consequently climate neutral. To achieve long-term reduction in the number of people exposed to noise, LFV is reviewing how noise exposure around its airports may look in the future. This description will be used in long-term local development planning. LFV also carries out noise-insulating measures in residential buildings that today are exposed to noise levels that exceed the limits set by Parliament. During 2006, LFV improved its work with chemicals and established an information system common to all units. Work is now under way to inventory LFV s use of chemicals and phase out the most environmentally disruptive, which may also have a positive effect on runoff water recipients, that is, lakes and streams.. Group objective: Attractive employer LFV shall be an attractive employer with a positive image. Strategies LFV shall strengthen operational efforts at skills recruitment and increase its internal mobility. LFV shall strengthen and develop businesslike management. LFV shall develop an image as an 6 > LFV 2006 < LFV Group objectives and strategies

11 employer that reflects its values, as well as management by objectives and diversity. It must develop its employer role in such a way that its operations and employees are capable of meeting market demands and acting quickly in response to changes. Management by objective shall be strengthened and lead to improved performance. Target fulfilment: Attractive employer LFV continued its introduction of a skills recruitment process. Strategic competencies, gap analysis and an action plan for how LFV should cover future competency needs are being produced. LFV s management development programme, which started during 2006, is helping develop leadership and the employer role. LFV s new human resource policy, based on its mission and values, is being introduced and will contribute to the development of a positive employer image. A new salary policy and a model for objective-related contracts are available to all managers. LFV is consulting with employees on its diversity plan. These objectives shall lead to greater awareness of the need to take full advantage of the experiences and competencies of employees. Group objective: Airports LFV shall offer its customers airports with the best customer value in the Nordic countries in every category. Strategies LFV is working to change the current emission ceiling at Stockholm-Arlanda Airport to allow full utilisation of the airport s capacity. This is especially important, since total emissions by both ground and air traffc risks increasing due to the emission ceiling. By providing competitive infrastructure products that offer good value for money and by pursuing active marketing, LFV shall stimulate the development of the air travel market and increase passenger value. When finances permit, LFV s focus is on cutting infrastructure prices charged to airlines, primarily for aircraft with good environmental qualities. It is especially important for airport charges at Stockholm-Arlanda Airport and Malmö Airport to be competitive, primarily in a Nordic perspective. In the domestic market, LFV shall contribute to good accessibility, among other things by means of continued low infrastructure prices. LFV is improving air cargo operations at its airports to ensure that the volume of cargo that flies non-stop from Sweden will increase. Target fulfilment: Airports LFV works actively to attract new traffc. During 2006 it introduced a number of incentive programmes aimed at stimulating new passenger and cargo routes. Starting on January 1, 2007, it is implementing a price cut for airport infrastructure totalling about SEK 100 M, focusing on international traffc at Stockholm-Arlanda Airport and Göteborg-Landvetter Airport. During 2006, many new international routes began service, especially from Sweden s two main international airports: Stockholm-Arlanda and Göteborg-Landvetter. In air cargo, too, a number of significant new routes opened. During 2006, domestic traffc growth was weak as a result of a saturated market. During the autumn, international charter traffc also showed a downward trend, especially in Stockholm, Gothenburg and Malmö. However, the objective is that by 2010, LFV s airports shall have the best customer value in the Nordic countries. Group objective: Commercial products LFV s net profit from commercial products shall increase from SEK 693 M in 2006 to at least SEK 940 M by Strategies LFV shall increase its earnings from commercial products per unit of area and passenger. It shall develop new products and, where appropriate, seek partners that can provide expertise and risk capital to increase profitability. The commercial potential of land, especially at major airports, shall be developed. LFV shall develop new advertising products. Target fulfilment: Commercial products Profit on commercial operations is following the existing plan and totalled SEK 693 M in The major economic potential is found at LFV s larger airports. Through collaboration between LFV and Schiphol Airport in the Netherlands within the framework of Arlanda Schiphol Development Company AB (ASDC), LFV has access to internationally acknowledged expertise in shop and restaurant operations at airports. A number of new commercial units went into service during the year, especially at Arlanda. At Malmö Airport, the passenger terminal was renovated to create a common departure hall for domestic and international passengers, stimulating shop and restaurant sales. The potential for development of commercial products at LFV s smaller airports is limited. LFV is also working actively here with commercial development, but with greater emphasis on car parking and advertising products. Group objective: Air navigation services LFV s air navigation services shall be competitive and we shall successfully participate in the development of cross-border air navigation services in Europe. Strategies LFV shall be one of Europe s five most cost-effective producers of air navigation services. During the period, LFV s portion of Sweden s en-route charges shall not exceed SEK 400 per service unit, on the condition that the number of service units shows at least 3 per cent volume growth. In the long term, LFV shall endeavour to increase the cost-effectiveness of its air navigation services through collaboration, mainly with Nordic air traffic management organisations. Through high effciency and low costs, LFV shall successfully be able to sell its air navigation services to airports in an open market with financial value added. During the three-year planning period, capacity at Stockholm-Arlanda Airport shall increase from 80 aircraft movements to 90 per hour. Target fulfilment: Air navigation services In recent years, LFV has increased its productivity and has thus been able to lower en route charges. This has been possible through a combination of cost restraint and a continued increase in the number of overflights. The EU ordinances on a Single European Sky have gone into effect. This has resulted in talks between market players on the establishment of several alliances among air navigation services in Europe to seek collaboration and more effcient use of common airspace. LFV is continuing to pursue intensive efforts to develop Nordic collaboration, mainly through the Nordic Upper Airspace Concept (NUAC) project, whose goal is to join with Denmark s Naviair to deliver safe air navigation services that are more cost-effective and flexible. LFV Group objectives and strategies > LFV 2006 < 7

12 LFV s airports Generally speaking, 2006 was another year of traffic growth. International traffic rose sharply, while domestic traffic declined somewhat. LFV s air cargo investments paid off at several airports. Higher revenue from both airport operations and commercial operations, combined with streamlining of costs, enabled LFV to implement the largest price cut in its history. The purpose is to improve prerequisites for an expanded range of aviation services so that the business community and individuals can enjoy even more efficient transport. The adjustment of LFV s airport portfolio to changed market conditions continued. During the year, Norrköping and Kalmar Airports were transferred to municipal owners. Air travel in Sweden and the world According to the International Air Transport Association (IATA), global passenger traffc continued to grow during 2006 (+5.9 per cent), but at a somewhat slower pace than in 2005 (+7.6 per cent). Air cargo traffc also increased (+4.6 per cent), but here the rate of growth was somewhat higher than in 2005 (+3.2 per cent). In Europe, the restructuring of the civil aviation industry is continuing. The two largest low fare market players, Ryanair and easyjet, have an increasingly strong grip on the market (see the chart below). Even today, the smaller of these two companies, easyjet, has a larger European volume than Air France, KLM and British have. These market players are not yet in the same league in terms of size as the merged groups Air France-KLM and Lufthansa, but if the trend continues, Ryanair, easyjet and one or more other low fare carriers will dominate the European market within a year or so. Airport structure LFV s airports provide good coverage of Sweden from Malmö Airport in the south to Kiruna Airport north of the Arctic Circle. Together they form a coherent system that gives passengers access to important business and leisure destinations. Stockholm-Arlanda Airport, serving as a hub that offers more Millions of passengers Number of passengers in European traffic, 2006 than 170 non-stop destinations and frequent departures on many routes, ties together the traffc flows in the system. This increases accessibility both for the businesses and inhabitants in the Lake Mälaren Valley region around Stockholm and for transfer passengers from other parts of Sweden. In recent years, travel has changed in a way that that has meant a concentration of growth at major airports and significant traffc declines at a number of smaller airports. For this reason, LFV has studied the structure of the airport system and proposed changes in the Swedish State s responsibility for airports. On January 1, 2006, LFV withdrew from its involvement in Halmstad Airport. After reaching agreements with the respective municipalities and receiving approval from the Swedish Government, LFV withdrew from Norrköping Airport on June 30, 2006 and Kalmar Airport on January 1, In June 2006, the Government decided to carry out a review of the overall Swedish airport system. The directives for the inquiry include examining the role of LFV as a State infrastructure manager for airports. A supplementary directive asked the investigator, in connection with her analysis of LFV s role as a State infrastructure manager, to report on the financial and transport policy conditions and consequences of alternative operational mechanisms for LFV. The inquiry is scheduled for completion in the autumn of Traffic developments Traffc continued to grow during 2006 but at a slower pace than during 2004 and The total increase in passengers was 2.7 per cent. The number of passengers in international traffc rose by 6.8 per cent, while domestic traffc decreased by 2.0 per cent. The very strong Swedish economy and a recovery in the euro area are the most important reasons behind the continued increase in international traffc. Domestic traffic decreased despite good Swedish economic conditions, largely because airlines made capacity adjustments where capacity was previously too large to give the airlines the potential to make a profit. A strong year for air cargo LFV s efforts to attract air cargo business paid off during 2006, with new heavy air cargo operations being established. Göteborg-Landvetter Airport has a well-established position as a heavy cargo airport. Stockholm-Arlanda Airport previously had a substantially weaker position, but during 2006 Arlanda went from virtually no heavy air cargo aircraft to six departures per week in cargo-version jumbo jets. During the year, Göteborg-Landvetter Airport added two new heavy air cargo departures a week. It also added two new jumbo jet departures in January Since November 2006, Jönköping Airport has also had two air cargo aircraft departures a week. 0 Air France - KLM Lufthansa Ryanair easyjet British Airways 8 > LFV 2006 < Airports

13 Lower prices thanks to commercial successes and greater cost efficiency A strong improvement in earnings from airport operations during 2006 enabled LFV to carry out its largest price cut ever at the beginning of A combination of greater cost efficiency, increased traffic volume and commercial successes contributed to LFV s strong earnings. The price cut is targeted to those market segments where LFV sees the largest potential for future growth and where international competition is toughest. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxx Airports > LFV 2006 < 9

14 LFV s efforts to attract more air cargo business paid off during A number of new departures were added at LFV s airports. To stimulate even more air cargo, special price discounts for air cargo above 200 tonnes were introduced. The good conditions for air cargo expansion in Sweden are largely due to the potential for using the Swedish market to reduce problems with imbalances in global cargo flows. Today the demand for air cargo from Asia to Europe is much larger than in the other direction. This means that air cargo companies generally have problems with low load factors and low prices on their flights back to Asia. By making a stopover in Sweden and picking up Swedish export merchandise bound for Asia, the load factor can be boosted, improving the financial return for these operations. With more non-stop flights, the Swedish business sector enjoys more effcient transport services. In many cases, higher load factors and non-stop flights also mean improved environmental effciency. To stimulate air cargo operators to continue investing in operations at LFV airports, a special discount ladder for pure air cargo flights with payloads above 200 tonnes has been introduced. Marketing of LFV s airports The effects of the liberalisation of the European civil aviation market in the early 1990s have materialised gradually. The rapid expansion of low fare air travel is perhaps the most obvious change, but in the wake of deregulation the competitive conditions affecting airports have also clearly changed. Having generally been comparatively protected in their geographic catchment areas, airports have become increasingly exposed to competition. % 12 Passenger growth, 2006 compared to Oslo-Gardermoen Helsinki-Vantaa Paris-Roissy Copenhagen-Kastrup Amsterdam Stockholm-Arlanda Frankfurt London-Heathrow Source: ACI Compared to the airports in other Nordic capitals and the largest airports elsewhere in Europe, Stockholm-Arlanda Airport showed good growth during In 2006, however, Arlanda reported low passenger growth compared to these airports (see chart above). There are two main reasons for this: 1. Due among other things to the fast, efficient service offered by Stockholm-Bromma Airport, a sizeable proportion of domestic traffic from Arlanda has moved to Bromma. 2. The rapid expansion of low fare service has decelerated, which can be explained at least partly by the previous Swedish Government s proposal to introduce an aviation tax. 10 > LFV 2006 < Airports

15 Malmö Airport is an excellent example of changed market conditions. The airport previously had a more or less given market base consisting of domestic traffic to Stockholm and international charter traffc to supply the need for holiday travel by inhabitants of southern Sweden. Today Malmö Airport is competing with airports in places like Bologna, Oslo or Bratislava to attract new scheduled air routes from countries like Germany, when airlines with pan-european brands are searching for new expansion opportunities. The destination is rarely an airport. Instead it is a region or country. Airlines naturally demand that airports be effcient and passenger-friendly, but in many cases this is regarded as an almost self-evident requirement. The decisions of airlines to establish new non-stop routes are thus determined primarily by such factors as tourist destinations, the strength and structure of the business community and the population size and prosperity of the catchment area. To take better advantage of existing market opportunities and meet tougher competition, LFV has strengthened its marketing efforts in order to create additional non-stop routes that provide more effcient transport service and greater accessibility. To market Swedish destinations to airlines, LFV works in close co-operation with numerous public and private regional organisations that work with tourism and business development. One concrete example of the efforts being made is that, aside from its price cuts at the beginning of 2007, LFV has allocated SEK 15 M for inbound tourism projects aimed at creating new flows of tourists and other passengers. All projects will be carried out together with other parties such as tourist promotion organisations and tour operators. Especially in European traffc, marketing work has been made easier by the new Government s decision late in 2006 not to introduce any aviation tax. The first to announce new routes after this decision was Malmö Airport, where the number of international scheduled routes has increased from four to seven due to new routes to Barcelona, Madrid and Marseille. Lower prices for airlines Aviation charges (also called traffc or infrastructure charges) are the airports largest source of revenue, accounting for about 58 per cent of their total operating revenue. Passenger charges are payable per departing passenger, while the take-off charge is based on aircraft weight and exhaust emissions. Exhaust and noise charges encourage the airlines to employ aircraft with less environmental impact. Aside from the published charges, there are introductory rebates for new traffc. The changed market structure described above naturally requires LFV to adapt its products and prices to the changed needs of its customers. Traffic trend at LFV s airports, 2006 Passengers Number Change from 2005 Landings Number Change from 2005 International 16,269,361 7% International 100,930 0% of which of which European traffic 14,519,569 8% European traffic 95,418 0% Rest of world 1,749,792-1% Rest of world 5,512 1% Domestic 13,331,421-2% Domestic 118,324 5% Total 29,600,782 3% Total scheduled and charter 219,254 3% Taxi flights and general aviation 59,199-19% Total 278,453 7% Airports > LFV 2006 < 11

16 LFV is working actively to increase its commercial earnings. For example, during 2006 Malmö Airport invested in a renovated terminal with completely new commercial potential as well as advertising space on the air traffic control tower. There is especially large growth potential for intercontinental airlines and European low fare airlines, while the competition is tough between different airport operators. These airline customers view Sweden as one possibility among many when they consider expanding. This is why it is important for LFV s products and prices to be competitive for these market segments. By means of traffc growth, stronger commercial operations and continued streamlining of costs, during 2006 LFV created room to carry out a unique price cut at the beginning of The value of the entire price cut package to customers, including investments in inbound tourism, is more than SEK 100 M. The largest single step was a cut in the passenger charge for international traffc at Stockholm-Arlanda Airport and Göteborg- Landvetter Airport. In addition, LFV lowered the take-off charge for passenger aircraft normally used in intercontinental traffc, in order to lower the airlines costs for such traffc to the same level as for European flights. Examples of charges LFV s total charges for a given flight are determined by a number of factors. The charge varies depending on the aircraft s exhaust and noise characteristics as well as its maximum take-off weight, which airport the flight is departing from and the number of passengers. The table below to the right (page 13) shows in a simplified way how the charge system works. The overall charges for a single journey on some of the highest-volume domestic routes totalled between SEK 115 and SEK 130 per passenger. Future changes in LFV s charges The goal of LFV is to be able to keep traffc charges unchanged or lower them. An unchanged level of charges is projected to require a certain traffc growth. If possible, taking into account the trend of LFV s earnings, LFV aims to lower the level of charges further in order to stimulate market growth. Airport operations products Earnings from airport operations products during 2006 totalled SEK -276 M (-421). This means that traffc charges are too low to cover the costs of the airports. The deficit is covered by commercial operations. Significant improvements in airport effciency have been implemented in recent years. The task of increasing costeffectiveness will continue, so that over time LFV can meet both the targets of its owner and the need of airlines for low charges. At all LFV airports, organisational structure and operations are being reviewed to improve effciency. The completion of Pier F at Stockholm-Arlanda Airport is under way. This investment marks the completion of the pier s interior while creating three new aircraft parking stands. The arrival hall for international passengers at Göteborg-Landvetter Airport has had insuffcient capacity and is now being renovated, including new baggage conveyors with substantially higher capacity. Considering the spare capacity generally available at LFV s airports, capital spending can and should be limited in order to keep costs down. In order to deal with the capacity issue in the Stockholm region, LFV needs a decision about the future of Stockholm-Bromma Airport. Commercial products During 2006, LFV s profit from commercial products was SEK 693 M, an increase of SEK 90 M compared to Commercial products generate 44 per cent of revenue at LFV airports. Looking ahead, LFV will work actively to increase commercial revenue through collaboration with external market players, development of new products, exploitation of more terminal area and land as well as generally attaching greater importance to commercial aspects when renovations, extensions and new construction are planned. LFV s target is for net profit from commercial products to increase from SEK 693 M in 2006 to SEK 940 M in There is a trend towards a lower proportion of travel to and from airports occurring by car, while volume and profit from total commercial operations need to increase. The number of cars parking at Stockholm-Arlanda Airport increased by only 40 per cent of passenger growth, which clearly shows that more passengers are travelling to and from the airport by other modes of transport besides their own car. Combined with efforts to increase earnings from other products, the outcome was that for the first time, property leasing provided the largest financial earnings, a first place that previously belonged to parking operations. Especially at Stockholm-Arlanda Airport and Malmö Airport, LFV also worked to improve airport accessibility via other modes of ground transport 12 > LFV 2006 < Airports

17 besides air passengers own cars. LFV works together with Göteborg & Co. and Stockholm Business Region to strengthen awareness of Scandinavia and Sweden as international meeting venues. This work strengthens both airport operations and hotel and conference operations. During 2006 hotel operations at Stockholm-Arlanda Airport increased sharply. Eventually new investments may be needed to expand hotel capacity. The new Rest and Fly concept has worked well, showing that it was possible to broaden the product range successfully to include low-price accommodations near terminals. At the start of 2006, conference operations at Stockholm-Arlanda Airport were transferred from the subsidiary LFV Airport Center AB (LAC) to the State enterprise, with continued good earnings. During the year, LFV requested changes in Sweden s alcohol beverage legislation in order to level the playing field with many other airports in the world, Europe and the Nordic countries. Norway allows incoming passengers to buy alcoholic beverages at airports. This diverges from the previous Nordic agreement on tax legislation concerning alcoholic beverage sales and means lower earnings for Swedish airports. To limit the competitive disadvantages to Swedish airport operations and introduce a system that is more effcient in various respects, LFV advocates allowing sales to arriving passengers. Reducing the quantity of alcoholic beverages transported in aircraft means less environmental impact and also improves service to passengers. For a number of years, LFV s advertising business has performed more weakly than expected. Competition with other media has been tough, but during 2006 signs of recovery for advertising products began to be evident. LFV expanded its sales organisations, which resulted in larger and longer contracts than previously. By improving effciency, property management costs were reduced. This had a positive impact on profit from all operations. Traffic charges per passenger and single journey, 2006 Air route Arlanda to Landvetter Bromma to Landvetter Arlanda to Luleå Aircraft type Boeing Avro RJ 100 Boeing Cabin factor 60% 60% 60% Charges in effect on December Aircraft-related charges 1 (SEK) Passenger charge (SEK) En route charge (SEK) Total Take-off, exhaust and noise charges plus Terminal Navigation Charge (TNC). TNC covers the cost of air navigation services at the airport and in its vicinity. Airports > LFV 2006 < 13

18 Restaurants and shops in terminals At Göteborg-Landvetter Airport, three new cafés opened in They employ modern, attractive café concepts that meet the need of travellers to have a choice between sitting down on the spot for a while or easily bringing food on board their flights. Malmö Airport has created a terminal concept unique in Sweden, with a common terminal for all domestic and international passengers. The renovated terminal uses entirely open spaces where all passengers are welcomed by new shop and restaurant concepts. The renovation includes the entire terminal and provides new potential for commercial operations. A new restaurant and a new café opened, while the duty- and tax-free shop expanded greatly. Aside from commercial advantages, the renovation signifies an increase in the passenger capacity of the terminal, enablin it to accommodate nearly four million passengers per year. To offer passengers better service and a larger product range as well as increased commercial revenue at Stockholm- Arlanda Airport, LFV is collaborating with Amsterdam Airport Schiphol in the Netherlands in order to benefit from the commercial expertise and experience found at Schiphol. This collaboration takes place through Arlanda Schiphol Development Company AB (ASDC), owned 60 per cent by LFV and 40 per cent by Amsterdam Airport Schiphol. The company is responsible for commercial development of shops, restaurants and commercial services (currency exchange offces, banks and so on). In 2006, six new shops in the fields of fashion, design and electronic were inaugurated, as well as five new businesses in the food and beverage field. In both Terminal 2 and Terminal 5, commercial areas were upgraded to create more attractive shopping experiences, contributing to a noticeable increase in sales. This work is now continuing gradually in other parts of the terminals. ASDC also received overall marketing responsibility during the year. Instead of having a number of players handling their marketing independently, resources are being centralised at ASDC, resulting in more numerous, vigorous and better co-ordinated sales campaigns. In 2006, total sales in ASDC s areas of responsibility rose 10 per cent, despite lower duty- and tax-free sales. In percentage terms, the increase in sales is thus substantially higher than passenger growth. These operations provided LFV with revenue of SEK 326 M in 2006, an increase of SEK 40 M on the preceding year. SEK per passenger Aviation revenue and commercial revenue at airports, Breakdown of Group commercial product revenue, Real estate products 39% (40%) Advertising 3% (3%) Ground handling 12% (13%) Miscellaneous 22% (20%) Car parking incl. bus fee 24% (24%) Aviation revenue per passenger Commercial revenue per passenger Commercial operations Commercial operations offer services to travellers and generate a surplus that makes it possible to maintain lower prices for airport operations products. Trends by product category Sales, SEK M Real estate LFV s commercial operations are dominated by real estate products, which have the highest sales and profit. In many cases, LFV applies sales-based rents, which means that LFV shares financial risk with tenants Car parking etc. Car parking is an important activity, enabling airports to serve as hubs in the transport system. Air traffic growth during 2006 led to a small increase in both sales and profit Advertising etc. Through business partners, LFV sells advertising space at its airports. In recent years, these operations have had diminishing profitability due to tough competition with other media, but during 2006 the trend reversed > LFV 2006 < Airports

19 Increased revenue from both airport operations and commercial operations during 2006 enabled LFV to carry out the largest price cut in its history at the beginning of Airport statistics, 2006 PASSENGERS LANDINGS STAFF FINANCIAL DATA Total of which Total Full-time Fixed Capital internat., equivalent assets 1 spending Sales Profit 2 number Change number Change number Change number SEK M SEK M SEK M SEK M Stockholm-Arlanda 17,539,390 3% 12,207,474 7% 113,565-3% 781 8, , Göteborg-Landvetter 4,281,043 5% 2,934,046 8% 33,197 0% Malmö 1,883,128 4% 701,098 1% 21,063 1% Stockholm-Bromma 1,634,310 22% 126,429-5% 28,305 7% Luleå 912,688 1% 52,337 16% 8,965-2% Umeå 801,307-1% 36,985 10% 10,712 2% Åre Östersund 396,189 2% 21,347 3% 3,958-9% Ängelholm-Helsingborg 362,165-3% % 6,005 3% Sundsvall-Härnösand 337,661-5% 12, % 6,638-10% Visby 289,985 5% 8,182-4% 11,732 5% Skellefteå 220,438-13% 9,004 47% 3,521-17% Ronneby 209,613 2% 35 98% 4,538 12% Kiruna 171,323 3% 1,029 4% 3,046-17% Kalmar 3 156,967-12% 23,122 1% 4,511-16% Örnsköldsvik 131,612-8% 3,714 1,747-14% Jönköping 126,296 7% 57,524 27% 7,283-18% Karlstad 112,392 22% 40,486-30% 5,202-31% Norrköping 4 34,275 54% 33,661 53% 4,465-47% Book value. 2 Operating profit. 3 The airport was transferred to a new owner on January 1, Results for 2006 included extra expenses caused by this transfer. 4 The airport was transferred to a new owner on July 1, Airports > LFV 2006 < 15

20 LFV s air navigation services Dynamic developments are continuing in air navigation services as a consequence of the EU initiative known as Single European Sky, and 2006 was another very eventful year. At year-end, the Air Navigation Services (ANS) Division of LFV was certified according to the standards that apply today to all suppliers of air navigation services in the EU. Another step in the Division s efforts to provide continuous improvement for customers was also implemented at the end of 2006 when ANS received ISO 9001:2000 quality management certification. A final certificate will be received at the end of the first quarter of LFV wins IATA s Eagle Award LFV/ANS received confirmation that customers appreciate its air navigation services when it won the 2006 Eagle Award from the International Air Transport Association (IATA). The Eagle Award is the world s most prestigious prize awarded to airports and suppliers of air navigation services. LFV/ANS ranks first in Europe in terms of cost-effectiveness and keeping down charges to airlines. Meanwhile it is endeavouring to improve operations and effciency through cross-border collaboration with its neighbours in the airspace field and through collaboration in technology and procurement. Aviation safety Aviation safety enjoys top priority in the work of the Division. Extensive resources and energy are devoted to maintaining a high level of aviation safety. No accidents have been caused by the operations of ANS. During 2006, however, an incident occurred in which the risk of a collision between two small aircraft was obvious, which meant that the aviation safety target was not met. Control centres are stable The new control centres in Stockholm and Malmö, which went into operation in 2005, have met expectations. The former control centre in Sundsvall is now fully integrated into the Stockholm centre. A major interruption occurred when the Stockholm centre s regular computer was down for about 3 hours. There was never any danger to aviation safety, since the centre s emergency system worked as intended, but some delays in air traffc occurred. The fault was identified and steps were taken to avoid a repetition. the supplier Thales, LFV has reached agreement as to how this will occur. The agreement means that costs of development work will be shared by several parties. This has generated great interest from other suppliers of air traffc management services, and additional air navigation service suppliers will probably join over time. Greater cost-effectiveness In 2005, effciency measures were implemented, among other things because of the new control centres that went into service. Experience from 2006 indicated that these measures were wellbalanced and it has been possible to continue operating with high quality and availability. However, during certain periods of the year especially during the summer there is an imbalance between staff supply and demand. This is true of both airports and control centres and is because during the summer holiday period, air traffc does not diminish in the same way as previously. It can thus not be ruled out that delays will increase during the summer months. In light of this, LFV has ordered increased training of air traffc controllers from the Scandinavian air traffc services academy, Entry Point North. Euro/SU The technical system will be devel- 0 oped in a number of steps during the next several years. Together with Denmark s Naviair, Ireland s IAA and En route charges, 2006 United Kingdom Belgium y German France Norway Development of air navigation services LFV acquiring data links In the air traffc management system of the future, data links are a vital element. They enable significant larger quantities of time-critical data to be exchanged than allowed by today s voice communications and radar-based systems Denmark Controlled airspace movements Number during 2006 Netherlands Sweden Finland Change from preceding year 681,533 4% Of which, number of overflights Change from preceding year 275,212 12% Ireland Average Source: EUROCONTROL 16 > LFV 2006 < Air Navigation Services

21 LFV wins IATA s Eagle Award LFV received a confirmation that its customers appreciate its air navigation services when LFV received IATA s Eagle Award for The Eagle Award is the most prestigious prize given to airports and air navigation service suppliers. LFV received the prize in competition with all other suppliers worldwide. Air Navigation Services > LFV 2006 < 17

22 Green flights New technology opens up new opportunities. The trend towards expanded use of data links has opened opportunities to optimise flight profiles, especially during periods of low or moderate traffic intensity. When the flight begins, the pilot receives landing information from the destination airport. This information enters the aircraft s computer for processing. About minutes before landing, the aircraft begins its approach. Since this occurs well in advance, the aircraft glides down, saving fuel and making less noise. The aircraft touches down at exactly the appointed arrival time, resulting in better resource utilisation for the airport. A little later, a calculation for the entire flight is completed. After that, the pilot can easily follow the flight path and arrive at the proper time for landing. Ordinarily, pilots hurry to their destination by lowering their altitude in stages, then wait for landing. 18 > LFV 2006 < Air Navigation Services

23 between air traffc controllers and aircraft as well as between aircraft and airlines. Such systems also enable LFV to improve aviation safety, for example by providing pilots with a good picture of where other aircraft in their vicinity are located. LFV has begun to acquire such equipment, which in the initial stage will operate concurrently with existing radar infrastructure. The target is to cover Swedish airspace with such monitoring by SESAR Through the ANS Division, LFV plays a large, important role in the development of Single European Sky ATM and Research (SESAR), an EU-initiated programme for implementing future air traffc management systems. In this programme, a European aviation industry consortium is working to define common development work. LFV is contributing through a Nordic mandate to work towards satisfying the need for cost-effective solutions that will benefit traffc growth in the region. Green aviation and green approaches The trend towards greater use of data links has opened opportunities to optimise flight profiles, especially during periods of low or medium traffc intensity. Together with various airlines, among them SAS Sweden, LFV is pursuing a project that employs active time control of when an aircraft will land in order to make fuel-optimal approaches possible, in the first stage to Arlanda. SAS estimates that this way of controlling traffc can reduce fuel consumption by several hundred kilos per approach. Reduced fuel consumption means environmental improvements. The project has consequently attracted great interest even among non-participants. For Stockholm-Arlanda Airport, every measure that can reduce environment load is very attractive, since the current emission ceiling constitutes a clear barrier to the airport s expansion. Nordic collaboration expanding Training The joint Scandinavian air traffc services academy Entry Point North, located at Malmö Airport, began operations in For LFV this means that its previous Swedish Air Traffc Services Academy (SATSA) has been discontinued and that training operations remaining in the ANS Division have been incorporated into the Division s regular organisation. Joint service provision During 2006, many years of collaboration among LFV, Avinor (Norway), Naviair (Denmark), Finavia (Finland), ICAA (Iceland) and EANS (Estonia) resulted in an agreement on a joint Nordic ATM Service Concept. ATM refers to air traffc management. These organisations appeared at the annual ANS exhibition in Maastricht under the name Nordic ANS Providers. This attracted interest because at the time, it was the only established collaborative arrangement among so many ANS organisations. LFV and Naviair are running a joint project aimed at finding suitable mechanisms for substantially enlarged collaboration in providing air traffc management services. The main purpose of increased collaboration or integration is to reduce costs and thus further lower airline charges for these services. Both LFV s customers and the European Commission are very interested in this work, since it is one of the most concrete examples of potential crossborder streamlining. In LFV s judgement, during 2007 supporting documentation can be submitted to the Danish and Swedish Governments for a decision. Air Navigation Services > LFV 2006 < 19

24 LFV s environmental work LFV has reduced its carbon dioxide emissions in the past five years and will reduce them by an annual average of about 4 per cent until Environmental concern permeates LFV s operations and is weighed into every decision. LFV s airports are examined regularly in compliance with the Swedish Environmental Code, and LFV is working intensively with the emission sources it can influence and with environmental investments. LFV can serve as a role model in terms of sustainability. It already has well-developed policies, strategies and targets related to finances, social issues and the environment. LFV reducing CO 2 emissions During the period , LFV reduced its carbon dioxide emissions. In 2007, LFV is continuing to prioritise work with climate-affecting gases. Its environmental target related to atmospheric emissions means that LFV will reduce emissions of fossil carbon dioxide from its own operations. During , emissions shall decrease by an average of 4 per cent annually compared to emissions two years earlier. LFV is Sweden s first large climate neutral company Since 2006, LFV has been a climate neutral company, offsetting its own CO 2 emissions that cannot be offset by internal actions through support to projects that reduce these emissions. Nature the winner in Malmö Airport s environmental investments Large investments will improve the environment at and around Malmö Airport over the next several years. Pellets will replace fossil fuels and CO 2 emissions will decrease substantially by replacing old oil-fired boilers with two pellet-fired boilers and one bio oil-fired boiler. Vehicles and field machinery increasingly use synthetic diesel, and an environmental pond is being built. The airport received its ISO environmental management certification on March 1, Brunkeberg Ridge spares the environment In the summer, cold water from holes drilled in a glacial moraine ridge that runs from central Stockholm to Arlanda is used to deliver district cooling. The holes are then refilled with 20 C degree return water for storage until winter. In winter, the aquifer (a geological formation containing groundwater that can be extracted in usable quantities) heats the ground and is re-cooled with water returned from the ground-heating system. This aquifer can be used entirely without heat pumps and will thus have substantially higher energy effciency than normal. Starting in 2006, all energy operations at Stockholm-Arlanda Airport have been organised into a separate unit, Arlanda Energi, with its own responsibility for earnings and its own operational targets. Its task is to improve the airport s energy operations, reduce energy consumption and lower the environmental impact of energy use. The unit is also responsible for serving as a source of technical backup to LFV on energy issues. Green flights Stockholm-Arlanda Airport is working with green approaches. They include the entire flight. Through continuous exchange of information between aircraft and airport, speed and throttle position can be optimised. The procedure reduces noise as well as carbon dioxide emission. Transporting fuel by train Haulage of aircraft fuel through Stockholm by tanker lorry has ceased. The fuel is Cooling and heating via the aquifer In summer, the aquifer delivers water to a district cooling network and is filled with water that is channelled back. In winter, the aquifer is re-cooled with the help of a ground heating system. now carried by train from Gävle harbour north of Stockholm to a newly constructed reloading station at the Brista district heating plant near Märsta. At Brista, the aircraft fuel is unloaded from the trains and pumped onward to a fuel depot at Stockholm-Arlanda Airport through a 5.5 km long pipeline. Götalandsbanan an opportunity for Göteborg-Landvetter Airport An enlarged catchment area, better public transport options to the airport and the creation of a travel centre with increased commercial potential are the expected effects when the railwayconnection between Göteborg-Landvetter Airport and Gothenburg becomes a reality. The line is part of a larger project that will connect western Sweden s two largest cities, Borås and Göteborg, with a double-track railway. Upptåget commuter train Five technically advanced electric multiple unit (EMU) trains have been leased for service between Upplands Väsby via Stockholm-Arlanda Airport north to the university city of Uppsala. Interiors have been reconfigured to make more room for baggage. About 1,000 people per day are expected to get off and on the service at Arlanda Central rail station. Ecotaxis Since 2005 Stockholm-Arlanda Airport has had separate queues outside its terminals for ecotaxis. The number of such environmentally cleaner taxis is estimated at more than 500. Biogas buses acquired Stockholm-Arlanda Airport is the first airport in the world to have acquired three biogas-powered buses for internal transport services. The other buses run on synthetic diesel fuel. 20 > LFV 2006 < LFV s environmental work

25 Concern for the environment permeates LFV s operations LFV is working actively to reduce carbon dioxide emissions. Emissions shall be reduced by an average of 4 per cent annually until This includes programmes to replace fossil fuels with pellets and synthetic diesel. The photos show an environmentally friendly heating/water system at Göteborg-Landvetter Airport. LFV s environmental work > LFV 2006 < 21

26 BLICC network taking responsibility for climate issues The Business Leaders Initiative on Climate Change (BLICC) is a network of companies that are taking responsibility for climate issues and supervising the transformation to effcient ways of reducing energy consumption and fossil carbon dioxide emissions. LFV s involvement in BLICC has given it a broader understanding of the parts of its operations that lead to CO2 emissions and an increased its shift towards renewable resources. The aim is that LFV operations should be carbon dioxide neutral. Arlanda s emission ceiling Stockholm-Arlanda Airport has strategically important cases before the regional Environmental Court. The first case is a request for amendments to the airport s emission ceiling. LFV believes that this environmental condition is improperly designed, since it regulates emissions that LFV does not control. It also risks leading to increased emissions. In similar cases, Sweden s Supreme Court and Environmental Court of Appeal have issued rulings on control-related matters that confirm LFV s opinion. LFV would like the Environmental Court and the Government to allow the environmental condition to be amended in such a way that an emission ceiling for carbon dioxide and nitrogen oxides applies only to operations LFV has full control of. The other case concerns aircraft approaches from the south. The flight paths being used comply entirely with current permits. The Stockholm County Council has applied for a change in the condition on aircraft approaches to Runway 3 over Upplands Väsby due to complaints from residents about noise. In addition, three cases concerning approaches and take-offs over Upplands Väsby have been appealed to the Environmental Court. During 2006, this court examined the cases. Rulings are expected during the spring of Approach paths In July 2006, Göteborg-Landvetter Airport received a temporary environmental permit for an operating volume of 80,000 airspace movements per year and permission to use the flight paths introduced in October In the summer of 2007, LFV will apply to the Environmental Court for a completely new permit for Landvetter to expand operations to 120,000 movements with newly designed flight paths. LFV s continued environmental work All LFV airports have inventoried soil pollution. During 2007, overall soil investigations will continue at Kiruna, Skellefteå, Umeå, Sundsvall-Härnösand and Örnskölds vik Airports. LFV is creating an environmental data tool to safeguard reporting and follow-up. It will go into service in the first half of This tool is Group-wide and ensures that data calculations submitted are based on the same emission factors. Aggressive environmental investments at Stockholm-Arlanda Airport Numerous environmental investments are under way at Stockholm-Arlanda Airport. They range from environmentally friendly taxicabs and biogas-powered buses to the distribution of aircraft fuel by train and pipeline instead of tanker lorries. 22 > LFV 2006 < LFV s environmental work

27 LFV climate neutral since 2006 During 2006, LFV bought certificates for emissions equivalent to the 15,000 tonnes of carbon dioxide it generated in 2005, at a cost of about SEK 1.7 M. The certificates finance emission reductions through projects in developing countries. These projects also contribute to social and economic development. The projects that LFV financing involve wind power in China, bio-energy production in South Africa and reforestation in Costa Rica. LFV s environmental work > LFV 2006 < 23

28 LFV s employees and managers LFV must be an attractive employer with a positive image in order to attract, recruit and retain qualified employees. One major challenge is to ensure that employees and managers develop the right competency to meet market demands, be flexible and respond quickly to change. Attractive employer To strengthen its role as an attractive employer with a positive image, LFV is introducing a new human resource policy that will help develop good employeeship and attract future employees to LFV. The policy includes various elements for meeting LFV s expectations and needs: targets and performance, human resource development, salary and rewards, workplace health and safety as well as leadership. Human resource development Total employee mobility during 2006 was 8.3 per cent, 6.2 per cent of it internal. This means that 215 employees moved between or within Group units. This was a large increase compared to previous years. In 2006 more than 100 employees left their jobs to move to other employers, and some 50 were dismissed. About 100 more employees left LFV with retirement or other pensions. About 290 employees are expected to retire from LFV by To deal with the coming change of generations, LFV is identifying strategic competencies and establishing human resource development plans for employees. The objective is to ensure that employees and operations have the right competency for the needs of today and tomorrow. Target-related contracts LFV is introducing target-related employment contracts to create a clearer connection between business targets, outcomes and salary changes and help increase employees motivation and sense of participation in achieving operational targets. In 2006, target-related contracts were established for all executives who report to the Director General. Eventually such contracts will be introduced for all employees. During 2006 LFV clarified its approach to rewards for extraordinary achievements and established a financial framework in order to further underscore that it pays to achieve more. Leadership LFV started its management development programme during This programme will give new managers knowledge and prerequisites to improve their leadership based on a common leadership profile. It will also provide a common approach to LFV as an employer and lead to a common LFV manager identity. LFV conducts talent management analyses every year aimed at meeting its need for managers. One of these activities is to identify future development needs and potential management candidates. Gender and age structure The gender breakdown at LFV was 36 per cent women and 64 per cent men in 2006, or largely the same as in prior years. The breakdown within various Group units is uneven. Many occupational categories are dominated by one gender. Of LFV s 293 managers, 26 per cent were women. Of LFV s employees, 48 per cent were under age 40. Men were evenly distributed across the age intervals while just over half of women were under age 40. Employee statistics, average full-time equivalent positions Change 2004 Stockholm Division Group Airports Division 1,038 1, ,149 ANS Division 1,046 1, ,065 Subsidiaries Other units Total 3,418 3, ,786 1 Including permanent and limited-time contract employees. Staff resources For the fourth straight year, the number of full-time equivalent employees fell, while passenger numbers grew at an annual rate of 3-4 per cent. The number of full-time equivalent employees in 2006 was 3,418 (3,489), down 71 employees compared to This means that operations have become more effcient. This effciency improvement was possible due to organisational changes, along with integration of job assignments as well as phasing out of certain competencies and new recruitment of other competencies at a number of airports and units. 24 > LFV 2006 < LFV s employees and managers

29 LFV introduces target-related contracts During 2006, LFV introduced target-related contracts for all executives who report to the Director General. Eventually all employees will receive such contracts. These will more clearly connect targets and outcomes with pay increases. Another purpose is to increase employees motivation and sense of participation in achieving LFV s objectives. LFV s employees and managers > LFV 2006 < 25

30 Accounts The Government s instructions to LFV (SFS 1988:78) specify that LFV and the companies in which the Swedish State, through LFV, directly or indirectly has a controlling influence together form a State enterprise group, the LFV Group. The Group consists of the State enterprise LFV, the wholly owned holding company LFV Holding AB plus the limited liability companies LFV Airport Center AB (LAC AB), Flygplatsfastigheter i Landvetter AB, Sturup Hand ling AB and Swedavia AB, which are wholly owned by the holding company. The subsidiary Arlanda Schiphol Development Company AB (ASDC AB) is 60 per cent owned by the holding company. The associated companies Nordic Airport Properties AB (NAP AB) and Nordic Airport Properties KB (NAP KB) are 50 per cent owned. The associated companies Cityflygplatsen i Göteborg AB and Entry Point North AB are 40 per cent and 33 per cent owned, respectively. Cityflygplatsen i Göteborg AB, in turn, owns 100 per cent of the shares in Säve Airport AB. On behalf of the Swedish State, the State enterprise also owns 50 per cent of the shares in A-Banan Projekt AB, which is thus an associated company of the State enterprise. LFV transferred its shares in Västerås Flygplats AB to the municipality during December LFV operated civil aviation traffc at 17 airports during the full year On July 1, 2006, it sold Norrköping Airport to the municipality. At two of these airports, LFV was in charge of civil aviation traffc, which was made available through a co-operation agreement with the Swedish Armed Forces. On January 1, 2007, LFV sold Kalmar Airport to the municipality. LFV is in charge of air navigation services in Sweden. It operated local air traffc control services at 35 airports. Two air traffc control centres, in Malmö and Stockholm, were responsible for traffc management in airspace outside airport areas. The airports operated by LFV belong to a single system. The financial results at a given airport are affected by traffc volume generated both at that airport and elsewhere in the system. This is particularly obvious at the airport that forms the hub of the system, Arlanda, which handles traffc that feeds in from many locations around Sweden. The criterion for an airport to contribute positively to the system is not necessarily that it must show a surplus when viewed in isolation. Based on this system approach, deficits that arise at some airports have been covered by surpluses at other airports. However, some airports show such large deficits that not even a costing analysis that takes into account all revenue that these airports generate for the system as a whole will show positive earnings. LFV has studied the structure of the airport system. As a result, after receiving Government approval it has transferred ownership and operation of Norrköping and Kalmar Airports to the respective municipalities. Operation of the municipal airport in Halmstad has been transferred to the municipality. Accounting principles LFV s accounts for the State enterprise and the Group follow the Ordinance on Annual Reports and Budget Material (SFS 2000:605), the regulations and general advice of the Swedish National Financial Management Authority (ESV) and generally accepted accounting practices as provided by the Ordinance on the Accounts of Public Authorities (2000:606). To the extent there is a lack of standard setting aimed directly at public authorities and State enterprises, LFV applies the valuation rules in the recommendations of the Swedish Financial Accounting Standards Council in the manner reported in each respective section below. In preparing their annual reports, the subsidiaries of LFV apply the Annual Accounts Act and generally accepted accounting principles for limited liability companies. Formats and supplementary disclosures The income statements, balance sheets and funds statements have been formatted in compliance with the above-mentioned rules for State enterprises and State enterprise groups. Recommendation No. 4 of the Swedish Financial Accounting Standards Council on accounting for extraordinary items and disclosure for comparative purposes is applied. Changes in accounting principles etc In the income statements, balance sheets, funds statements and the notes to these, certain marginal adjustments and relocations have been made in 2005 figures. Principles of consolidation The consolidated accounts include the State enterprise (LFV) and those Group companies in which the State enterprise directly or indirectly possesses more than half the voting power for all shares or otherwise exercises a controlling influence, as well as those other companies (associated companies) in which the State enterprise has a substantial influence as a consequence of its shareholding. Subsidiaries The consolidated accounts have been prepared according to the acquisition method of accounting. Goodwill is amortised, when applicable, over the expected utilisation period. Negative goodwill that corresponds to expected future expenses is withdrawn as expenses arise. The Group s accounting principles for postponed (deferred) tax effects are described below under the heading Taxes and tax equivalent. Associated companies Reported as associated companies are companies in which the State enterprise can exercise substantial influence due to its holding of more than 20 per cent but no more than 50 per cent of the voting power. With the exception of A-Banan Projekt AB, these companies are reported in the consolidated accounts according to the equity method of accounting. Since the Swedish State through LFV and the National Rail Administration (Banverket, BV) owns 100 per cent of the shares in A-Banan Projekt AB, LFV reports this associated company according to the proportional consolidation method of accounting, in compliance with the Ordinance on Annual Reports and Budget Material. The proportional consolidation method means that in its balance sheet and income statement, each respective owner company reports its proportion of the assets and liabilities as well as the earnings of the associated company. General balance sheet valuation principle Unless otherwise stated, assets, liabilities and provisions have been valued at acquisition value. Fixed assets Tangible fixed assets Tangible fixed assets are valued at their acquisition value less depreciation. 26 > LFV 2006 < Accounts

31 When applicable, a write-down is made in the manner described below. When constructing facilities costing substantial sums, in compliance with the Ordinance on Annual Reports and Budget Material, interest during the construction period is included in acquisition value. The capitalised amount has been determined according to the alternative permitted in Recommendation RR 21 of the Swedish Financial Accounting Standards Council on borrowing costs. LFV has no such obligations related to disassembly, removal, soil decontamination and similar measures that must be included in the depreciable amount of fixed assets. Depreciation is calculated by apportioning the acquisition value on a straight-line basis over the estimated utilisation period. Depreciation commences when an asset is ready to be placed in service for its intended purpose. When an asset includes components with different utilisation periods, LFV applies the rules in RR 12 concerning component depreciation. Ongoing capital spending projects are reported under the heading Construction in progress. Any write-down requirements are examined, and LFV applies Recommendation RR 17 of the Swedish Financial Accounting Standards Council on impairment of assets. For many years, in the valuation of airports, LFV has applied a system approach. Since the airports are operated as one system, an individual airport has been valued on the basis of its usefulness to the system rather than on the basis of reported profit. Because the airports are operated as a system, it is not possible in a meaningful way to isolate the cash flow that is attributable to individual airports that are part of the system. When applying RR 17, the airport system has therefore been treated as a single cash-generating unit. In case there are facilities at an airport that are not needed in the system, a separate valuation of these occurs. Since the airport system is treated as a single cash-generating unit, the need for write-downs will essentially be set in compliance with the same principles as prescribed in the Ordinance on Annual Reports and Budget Material. Intangible fixed assets LFV applies ESV s instructions and general advice concerning the reporting of development expenditures. According to these instructions, development expenditures that meet specified requirements shall be reported as intangible fixed assets. Research expenditures may not be capitalised. Since ESV s rules are based on the same principles as Recommendation RR 15 of the Swedish Financial Accounting Standards Council on intangible assets, LFV has obtained guidance on various application questions from RR 15. Purchased software with an economic service life estimated at more than three years is reported as an asset. Depreciation and amortisation periods Amortisation, intangible fixed assets Software Goodwill Depreciation, tangible fixed assets Buildings (SkyCity facility Field structures (Arlanda Link Electrical installations Telecommunications equipment Vehicles, machinery etc Computers on loan to employees 1 3 years 5 years 5-40 years 30 years) years 40 years) 5-20 years 8-15 years 3-10 years 3 years 1 Personal computers other than computers on loan to employees are estimated to have an economic service life of less than 3 years. The acquisition cost is thus expensed immediately. Starting with the financial year 2001, LFV has applied depreciation periods of 40 years for frames of terminal buildings and field structures. Applying Recommendation RR 12 of the Swedish Financial Accounting Standards Council on tangible fixed assets, components with a shorter economic service life are depreciated over the estimated shorter utilisation period of each component. The depreciation periods applied are re-examined on a continuous basis. Leases Leases are classified either as finance or operating leases. Classification is done by applying Recommendation RR 6:99 of the Swedish Financial Accounting Standards Council on leasing agreements. Leases that are classified as finance leases are reported as assets and liabilities in the consolidated balance sheet and, as appropriate, in the State enterprise balance sheet. The amounts reported are treated in the manner stated in the Council recommendation. Inventories Inventories are valued at acquisition value or net realisable value, whichever is lower. Revenue recognition The State enterprise applies general accrual accounting principles when reporting both infrastructure revenues and other operating revenues. The principles applied are compatible with Recommendation RR 11 of the Swedish Financial Accounting Standards Board on revenue recognition. LFV s subsidiaries apply RR 11 in their revenue recognition. The subsidiary Swedavia thus applies the rules in RR 11 on service assignments (percentage of completion method) when reporting revenue resulting from ongoing consulting projects. Trade debtors Provisions for expected loss risks related to outstanding trade debtors have been based on individual examinations. Receivables and liabilities in foreign currencies Receivables and liabilities in foreign currencies have been translated at the exchange rate prevailing on the balance sheet date, in compliance with Recommendation RR 8 of the Swedish Financial Accounting Standards Council on reporting the effects of changes in exchange rates. To the extent receivables and liabilities have been hedged by forward contracts, they are translated at the contracted exchange rate. Provisions and contingent liabilities LFV applies Recommendation RR 16 of the Swedish Financial Accounting Standards Council on provisions, contingent liabilities and contingent assets in its reporting of provisions and contingent liabilities. Under provisions, LFV reports any future obligations related to employees who have been terminated due to shortage of work and are aged 54 years or older. Within a five-year period, such individuals may be granted pension benefits as stipulated by an agreement with the Swedish Job Security Foundation, provided that they have not obtained other work. The assessment of the size of the provision was made on the basis of the insurance premium that government authorities (not State enterprises) must pay to the Job Security Foundation when an employee is terminated due to shortage of work. A-Banan Projekt AB has future rent commitments to the Swedish passenger rail company SJ and LFV related to rent for train station and airport areas. These amounts have not been reported as liabilities in the accounts of A-Banan Projekt AB, since this company must pay the same compensation to SJ and Accounts > LFV 2006 < 27

32 LFV as the company receives from the operator, A-Train AB, under the Project Agreement. Pensions Beginning with 2003, a new pension agreement, PA 03, has applied to Swedish State employees born in 1943 or later. For employees born in 1942 or earlier, pension agreement PA 91 still applies. Pension liability is calculated by the National Government Employee Pensions Board (SPV). PA 03 includes retirement pension, survivors pension and disability pension coverage. PA 03 includes the following retirement pensions: Defined-contribution pensions individual retirement pension and supplementary retirement pension, KÅPAN. Premiums are paid for these, and Defined-benefit pensions retirement pension on income above 7.5 base amounts as defined by Swedish social insurance rules, and retirement pension according to transitional rules for employees born from 1943 to These commitments are reported under provisions. The year s provision for pension liabilities, together with premiums paid, was expensed. The interest portion of the year s pension expense is reported as a financial expense. Indexation of certain benefits beyond the interest rate, 2.5 per cent, included in the basis for calculating pension liability is also reported in the interest portion. About 9 per cent of employees were not updated, which means that the pension liability for them was calculated on a standardised basis. Updated means that SPV carries out a complete review of all of a State employee s jobs for the State, as well as for local authorities or private employers. If there are gaps in the employment period, pension liability is calculated on a standardised basis. Among other things, this means that SPV assumes that an employee has had a State job from the age of 28 and that liability is calculated using a factor of This implies that the actual liability may be either larger or smaller. The portion of pension liability calculated on a standardised basis, including special payroll tax, amounted to SEK 30 M. In LFV s judgement, its liability is not understated. LFV has chosen to report the pension liability calculated by SPV. The reported pension liability consists of LFV s actuarially projected obligations under the PA 91 and PA 03 pension agreements. This pension liability is calculated according to the principles established by the National Government Service Pension and Group Life Insurance Board. Pension liability includes obligations to both active employees and pensioners. Unvested commitments, i.e. those related to employees with retirement ages below 65, are included in the liability, since these employees are expected to qualify for pensions. The State enterprise pays the special payroll tax on pension disbursements. The provision for the special payroll tax is thus based on the size of the pension liability at the end of the financial year. Taxes and tax equivalent The subsidiaries of LFV pay corporation tax. LFV is not liable for income tax but, in addition to the dividend, must remit a tax equivalent amount that is equivalent to the income tax that would be paid if its operations occurred in the form of a limited liability company. The tax equivalent payable for the year is to be calculated on the basis of reported Group profit according to the consolidated accounts, minus taxexempt appropriations equivalent to those available to limited liability companies and minus the corporation tax payments made by subsidiaries. The State enterprise reports a liability related to the estimated tax equivalent for the financial year. The Government will determine the final dividend amount and the year s tax equivalent amount when it adopts the 2006 accounts of LFV. Both the State enterprise and the Group report postponed (deferred) tax on the difference between reported profit and profit for tax purposes, in compliance with Recommendation RR 9 of the Swedish Financial Accounting Standards Council. The equity portion of the untaxed reserves of subsidiaries and the utilised portion of the State enterprise s potential extra depreciation on fixed assets are included in restricted reserves, which are reported both in the accounts of the State enterprise and the Group. The State enterprise has the opportunity to carry out extra depreciation on fixed assets, SEK 1,171 M as of December 31, The full amount was used for calculation of tax equivalent for 2006 and prior years. LFV pays State real estate taxes and the special payroll tax on pension expenses and is liable for taxation under the law on value-added tax. LFV also pays advertising taxes on revenues from renting out advertising space at airports as well as energy tax related to its energy consumption. Miscellaneous The figures that are reported have been rounded off in some cases. This means that tables and estimates do not always add up. In texts and tables, figures 0 and 0.5 are reported as 0. If there is no figure, a dash is used. Profit for the year The LFV Group s profit after financial items in 2006 amounted to SEK 447 M (238), an improvement of SEK 209 M compared to the preceding year. The improvement in earnings was mainly due to continued expansion of international traffc as well as favourable earnings from commercial operations. Earnings in both 2006 and 2005 included restructuring expenses due to the transfer of three LFV airports to municipal ownership. Expenses related to the municipal take-over of Kalmar Airport were charged to 2006 income in the amount of more than SEK 55 M. Earnings in 2005 correspondingly included expenses for discontinuing LFV s obligations at Halmstad Airport and Norrköping Airport, totalling about SEK 75 M. Profit forecast for 2007 Profit in 2007 is expected to be better than in Risks A-Banan Projekt AB A-Banan Projekt AB (A-Banan) is an associated company of the State enterprise. The shares in A-Banan are owned on a basis by LFV and the National Rail Administration (Banverket, BV). The task of A-Banan is to erect, own and manage the Arlanda Link, which connects Arlanda Airport with the State-owned railway network and is also entrusted with overseeing the State s rights and obligations under the Arlandabanan Project Agreement as well as participating in the development of rail services at Stockholm- Arlanda Airport. Through the Project Agreement, A-Train AB (A-Train) was assigned to build, finance and operate the Arlanda Link, as well as be in charge of the Arlanda Express airport shuttle train service between Stockholm Central Station and Arlanda Airport. A-Banan has limited equity. LFV and BV have issued an unlimited liquidity and capital coverage guarantee that the company will always be able to fulfil its contractual obligations. This commitment is based on a decision by Parliament, which the Government conveyed to the two authorities in its appropriation directives. LFV and BV have signed a share management and co-operation agreement. 28 > LFV 2006 < Accounts

33 Since the contractual rights and obligations of the Swedish State in the project have been gathered in A-Banan, the State s risk exposure will be managed by that company. According to the Project Agreement, A-Train carries the entire commercial and technical risks of the project. LFV s risk in the project consists of actions by A-Banan or by LFV itself that affect these operations, plus the fact that as an owner of A-Banan, LFV may be indirectly affected by any problems with the project. The Arlanda Link is a very complex project, since it concerns infrastructure that is part of the national railway system and essential for developing environmentally adapted ground transport services to Stockholm-Arlanda Airport. The contractual period is very long, and changes occur and have occurred in its surroundings that are important to the Project. One such example is the new Railway Act and demands that more tasks within management of railway infrastructure shall require permits from the Swedish Rail Agency. A-Banan has applied for a permit to grant traffc service rights on the Arlanda Link. Such a permit is crucial to enable A-Banan to fulfil its assignment under Sweden s national traffc policy concerning the development of rail traffc to Stockholm-Arlanda Airport. During 2006, A-Train stopped submitting to A-Banan the agreed information about technical, financial and traffc developments in the Project. This limits A-Banan s ability to follow changes in the Swedish State s risks in the Project. Discussions are planned with A-Train about how collaboration should be developed. If A-Train does not fulfil its assignment and the company s lenders do not take advantage of their step-in right, A-Banan re-assumes responsibility for the railway facility and traffc service rights on the State s track facilities. A-Banan has the right and under certain conditions the obligation to take over six of the seven trains used in the airport shuttle train service. For the seventh train, there is no such contractual obligation. According to the appropriation directives, LFV and BV shall compensate A-Banan for expenses associated with the project that would otherwise have been performed by LFV and BV. Compensation from LFV in 2005 was SEK 3.9 M (3.9). Financial risks The financial operations and financial risk management of LFV are co-ordinated in a separate profit centre, LFV Finance. Its operations are based on a financial policy document adopted by LFV s Board of Directors, which states the limits within which LFV may be exposed to financial risks in the areas of funding, finance and operating leases, financial investments and foreign exchange transactions. Interest rate risk in LFV s borrowing portfolio is limited by defining an average interest refixing period of 2.5 years with a permitted deviation of ± 12 months. The interest payments in the borrowing portfolio should be uniformly distributed. Within a 12-month period, a maximum of 50 per cent of liabilities outstanding may be rolled over. Derivative instruments are actively used to control interest rate exposure, for example by extending or shortening the average fixed-interest period without changing the underlying loan. Surplus liquidity is invested in certificates of deposit and with counterparties that have a creditworthiness equivalent to category K1 according to the Nordisk Rating system or its equivalent. Financial investments may not have a maturity period of more than 12 months. LFV s exchange risks are primarily related to payments for capital expenditures. According to LFV s financial policy, disbursements shall be hedged, for example by using currency forward contracts. Credits LFV has a credit council that continuously reviews the credit situation of all customers. The objective is to collect accounts receivable more quickly and to minimise LFV s credit losses. Other risks Aviation market developments LFV s finances are strongly dependent on aviation market developments. Revenue is highly volume-dependent and costs are largely fixed. As a result, changes in aviation traffc volume have a major impact on LFV s finances. Developments in the domestic market and any failure in the aggressive strategy at Malmö Airport are deemed to be the greatest risks. A continued regional imbalance in economic growth is expected to adversely affect smaller airports. Only the larger airports are expected to be able to increase their traffc. Overall, this may mean negative long-term passenger growth. Action: Maintain strict cost control and low capital spending volume to achieve a good productivity trend. In case of a sharp downturn in traffc, price increases may eventually be considered. Environmental conditions may limit LFV s development potential Today seven of LFV s airports do not have environmental permits that allow suffcient production. Most important is the emission ceiling at Stockholm- Arlanda Airport, which must be changed if growth consistent with LFV s business plan is to be possible. At some airports with valid environmental permits, the increasing demands of outside bodies may lead public authorities to re-examine LFV s operations. This, in turn, may lead to production ceilings and tightened environmental conditions that limit future development potential. Action: More intensive dialogue with neighbours and other stakeholders to describe LFV s actions in managing environmental problems related to noise and emissions. Increased efforts to stimulate greater use of public transport to and from airports. Efforts to bring about changes in the emission ceiling at Stockholm-Arlanda Airport in a way that, in the long term, will allow full utilisation of the airport s capacity. Weaker growth for airport commercial products LFV s financial plan includes a number of aggressive investments in commercial operations that will mean a major increase in earnings from airport commercial products. If revenue does not develop as planned, this will adversely affect earnings. Action: LFV follows developments in other countries carefully to track market trends. Clearer follow-up in order to spot negative divergences early and focus on developing new product categories. In case of weaker growth, LFV may need to take compensatory steps for aviation-related products. Capital spending needs The business plan assumes that replacement and capacity-raising capital spending must continue to be kept at a low level, since LFV s airports generally have large spare capacity. Meanwhile capital spending in commercial operations will increase. However, if earnings from these operations should become weaker than expected, financial performance will be adversely affected. Action: Improved follow-up of capital spending and greater demand for thorough financial projections in commercial projects. Accounts > LFV 2006 < 29

34 Income statements Amounts in SEK M LFV Group State enterprise Note OPERATING REVENUE Aviation revenue 1 3,877 3,712 3,877 3,712 Other operating revenue 2 2,103 1,971 1,981 1,840 5,980 5,683 5,859 5,552 OPERATING EXPENSES Staff expenses 3-2,138-2,079-2,066-2,002 Various external expenses 4-1,915-1,866-1,925-1,872 Depreciation/amortisation and write-downs of tangible and intangible fixed assets 5-1,187-1,188-1,154-1,151-5,240-5,132-5,146-5,024 Profit on holdings in Group and associated companies Operating profit Profit/loss from financial investments Profit from holdings in Group companies Profit/loss from fixed-asset securities and receivables Interest income Interest expenses and similar items Profit after financial items Income tax and tax equivalent Minority share in after-tax profit Profit for the year > LFV 2006 < Accounts

35 Comments on income statements Operating revenue Operating revenue totalled SEK 5,980 M (5,683), which was an increase of SEK 297 M or 5 per cent. The main reasons for the favourable revenue trend were the continued expansion of international traffc and favourable earnings from commercial operations. Aviation revenue increased by SEK 165 M or 4 per cent to SEK 3,877 M (3,712). Revenue from international traffc accounted for most of the in crease. Commercial and other operating revenue rose by SEK 132 M or 7 per cent to SEK 2,103 M (1,971). Larger passenger numbers, especially international, contributed substantially to the increase through the range of goods and services offered at airports, for example car parking, shops and restaurants. The increase in revenue is a consequence of the investments that are under way and entirely in line with LFV s objective of increasing earnings from commercial products to allow unchanged or lower airport infrastructure charges. Among the areas that showed favourable growth during 2006 were improved and expanded utilisation of terminal space at larger airports, increased car parking revenue and increased demand for specialised skills and consulting services. Operating expenses Operating expenses totalled SEK 5,240 M (5,132), which was SEK 108 M or 2 per cent higher than the preceding year. Staff expenses totalled SEK 2,138 M (2,079). The SEK 59 M increase was largely due to higher pension expenses and expenses in conjunction with em ployee restructuring measures. Higher pay levels were largely offset by a reduction in staff volume compared to the preceding year. Various external expenses amounted to SEK 1,915 M (1,866). This was SEK 49 M higher than the preceding year. Part of the cost increase consisted of development activities in commercial operations. The development, operation and maintenance of the new air traffic management system that went into service in 2005 also involved certain additional cost increases in 2006, as did measures at airports to meet security requirements related to screening of passengers and their baggage. Depreciation/amortisation was largely un changed from the preceding year, amounting to SEK 1,187 M (1,188). The year s depreciation included a write-down of LFV s assets at Kalmar Airport in conjunction with the municipal take-over of operation and ownership starting January 1, Operating profit Operating profit amounted to SEK 731 M (544), an improvement of SEK 187 M. Operating profit included LFV s share in the earnings of the associated companies Västerås Airport AB, Cityflygplatsen i Göteborg AB, Nordic Airport Properties AB and Entry Point North AB, totalling SEK -9 M (-7). On December 31, 2006, LFV sold its holding in Västerås Flygplats AB. Net financial items Financial income and expenses (net financial items) amounted to SEK -284 M (-306), an improvement of SEK 22 M on the preceding year. Interest expenses on borrowings from the National Debt Offce declined by SEK 36 M compared to the preceding year, due to lower debt and lower average interest rates. The interest portion of the year s pension expenses rose by SEK 15 M. Profit after financial items Profit after financial items in 2006 amounted to SEK 447 M (238), an im provement of SEK 209 M compared to the preceding year. It was thus LFV s best profit since LFV Holding AB LFV Holding AB was established in 1995 to co-ordinate and manage the activities of LFV s limited liability companies. In 2006, sales of LFV Holding AB were SEK 214 M (228). The decrease was due to the transfer of the conference operations previously run by LFV Airport Center AB from January 1, 2006 to Stockholm-Arlanda Airport within the State enterprise. Sales increased in all remaining subsidiaries compared to the preceding year. Profit before taxes was SEK 24 M (18). The improvement was primarily due to higher earnings from Swedavia AB and ASDC AB. Subsidiaries Swedavia AB is a wholly owned subsidiary of LFV entrusted with carrying out export-oriented consulting operations in the field of civil aviation. LFV AirportCenter AB (LAC) is a wholly owned subsidiary that manages the Arlanda 1:1 site leasehold. The site leasehold is leased to Stockholm- Arlanda Airport. Flygplatsfastigheter i Landvetter AB is a wholly owned company that mainly works with owning, managing and leasing cargo terminals to other companies, land and forest management, leasing of real estate for residential and leisure purposes and administrative services. The subsidiary Arlanda Schiphol Development Company AB (ASDC AB) is 60 per cent owned by LFV Holding AB and the remainder is owned by the Netherlands-based Schiphol International BV. The company further develops commercial businesses in the terminals at Stockholm-Arlanda Airport. Associated companies LFV owns Nordic Airport Properties AB (NAP) together with the American company Airis Holdings. The two owners each hold 50 per cent and the purpose of the company is to develop and acquire properties at Swedish airports. Cityflyplatsen i Göteborg AB runs civil aviation operations at Säve Airport in Gothenburg, focusing mainly on low fare carriers. LFV owns a 40 per cent stake. The other owners are Volvo AB with a 40 per cent stake and the Municipality of Gothenburg with 20 per cent. LFV Holdings stake in the associated company Västerås Airport AB was sold to the Municipality of Västerås on December 31, LFV owns 33 per cent of the newly established associated company Entry Point North AB. The company engages in air traffc services training and is co-owned by Denmark s Naviair and Norway s Avinor AS. Comments on income statements 31

36 Balance sheets Amounts in SEK M LFV Group State enterprise Note Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2006 Dec. 31, 2005 ASSETS Fixed assets Intangible fixed assets Goodwill Licences Tangible fixed assets Buildings 11 4,852 5,054 4,802 5,012 - Land Field structures 11 4,267 4,450 3,323 3,478 Electrical installations 11 1,296 1,405 1,297 1,405 Telecommunications equipment 11 1,195 1,282 1,195 1,282 Vehicles , ,036 Leased fixed assets Construction in progress ,409 13,793 12,400 12,757 Financial fixed assets Holdings in Group companies Holdings in associated companies Receivables from associated companies Other long-term receivables Total fixed assets 13,491 13,865 12,526 12,873 Current assets Inventories etc Stocks Current receivables Trade debtors Receivables from Group companies Receivables from associated companies Other receivables Prepaid expenses and accrued revenue Cash and bank balances, Group limit SEK 400 M (400) Total current assets 1,149 1, TOTAL ASSETS 14,640 14,964 13,520 13, > LFV 2006 < Accounts

37 Amounts in SEK M LFV Group State enterprise Note Dec. 31, 2006 Dec. 31, 2005 Dec. 31, 2006 Dec. 31, 2005 EQUITY AND LIABILITIES Equity Restricted equity 16 State funds 1,476 1,476 1,476 1,476 Restricted reserves 1,136 1,009 1, ,611 2,485 2,597 2,472 Unrestricted equity 16 Profit/loss brought forward Profit for the year Total equity 3,437 3,130 3,350 3,052 Minority interest Deferred tax liabilities Provisions Interest-bearing provisions Pension provisions 17 3,582 3,419 3,568 3,406 Non-interest-bearing provisions Miscellaneous provisions ,093 3,515 4,076 3,502 Long-term liabilities Interest-bearing liabilities Liabilities to leasing companies Liabilities to National Debt Office 20 4,628 4,883 4,628 4,883 Non-interest-bearing liabilities Other non-interest-bearing liabilities ,624 5,936 4,678 4,961 Current liabilities Interest-bearing liabilities Liabilities to leasing companies Overdraft facility Other interest-bearing liabilities Non-interest-bearing liabilities Trade creditors Liabilities to Group companies Liabilities to associated companies Tax liabilities Other non-interest-bearing liabilities Accrued expenses and prepaid revenue ,478 2,001 1,416 1,968 TOTAL EQUITY AND LIABILITIES 14,640 14,964 13,520 13,854 Memorandum items Contingent liabilities Assets pledged None None None None Accounts > LFV 2006 < 33

38 Funds statements Amounts in SEK M LFV Group State enterprise OPERATIONS Operating profit before depreciation/amortisation 1,634 1,426 1,577 1,371 Adjustment for items not included in cash flow ,799 1,329 1,700 1,138 Tax paid CASH FLOW FROM OPERATING ACTIVITIES BEFORE CHANGES IN WORKING CAPITAL 1,784 1,329 1,691 1,138 Cash flow from changes in working capital Change in stocks Change in current receivables Change in current liabilities CASH FLOW FROM OPERATING ACTIVITIES 1,318 1,560 1,357 1,507 INVESTING ACTIVITIES Shareholder contributions provided Acquisitions of intangible fixed assets Acquisitions of tangible fixed assets Investments in financial assets CASH FLOW FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Change in borrowings Dividend paid CASH FLOW FROM FINANCING ACTIVITIES CASH FLOW FOR THE YEAR LIQUID ASSETS, JANUARY LIQUID ASSETS, DECEMBER > LFV 2006 < Accounts

39 Comments on balance sheets and funds statements LFV operates 16 airports, which belong to a system with essentially the same standards at all airports. The estimated value of the fixed assets at the airports exceeds the book value of the entire system. The book value of the airports that show deficits amounts to about SEK 619 M. Since LFV is part of an industry undergoing major changes, LFV will continuously review the principles and assumptions on which the valuation of its fixed assets is based. The book value of LFV s fixed assets at all its airports amounted to SEK 10,746 M. Earnings and book value of fixed assets per airport are presented in the table on page 15. Capital spending During 2006, capital expenditures totalled SEK 812 M, which at a similar level to the preceding year (785). During , LFV invested SEK 2.3 billion, which was a significantly lower level than in the preceding three-year period, , when LFV s capital spending totalled SEK 6.7 billion. At Stockholm-Arlanda Airport, the renovation of Terminal 5 was completed. This meant increased service in the form of more shops and restaurants. In the same terminal, an upgrade of the baggage system for faster check-in was carried out. Runway work was performed at Stockholm-Arlanda Airport and Göteborg-Landvetter Airport. At Malmö Airport, the passenger terminal was adapted to increasing passenger volume. The terminal previously had a traditional configuration, with a division between domestic and international passengers. The renovated terminal means open gates and a common, open architecture for domestic and international passengers. The renovation is the first step in the aggressive investment programme initiated at Malmö Airport. Among major ongoing capital investments is the completion of Pier F, including new aircraft parking stands, at Stockholm-Arlanda Airport. During 2006, the erection of a new parking structure and the renovation of the arrival hall for international passengers began at Göteborg-Landvetter Airport. At Malmö Airport, construction of a biofuel-fired heat generating unit is under way. This step will contribute positively to the reduction of the airport s environmental impact by eliminating fossil carbon dioxide emissions completely compared to current technology. In connection with LFV s take-over in December 2005 of the airport on the island of Frösön near Östersund from the National Fortifications Administration, a number of capital investments were carried out during In Air Navigation Services, development and upgrading of the air traffc management system is under way. Together with Denmark s Naviair, Ireland s IAA and the supplier Thales, LFV has started a joint project to upgrade the air traffc management system. Otherwise, capital spending consisted mainly of replacement investments to make possible a safe, competitive and environmentally sound civil aviation system. Pension provisions Pension liabilities increased compared to This was primarily due to indexation, newly vested employees and interest. Liability to the National Debt Office By means of principal payments during 2006, LFV reduced its liability to the National Debt Offce from SEK 5,053 M to SEK 4,728 M. Dividend, tax and tax equivalent The year s tax equivalent amounted to SEK 131 M (72). Tax equivalent is calculated according to the Government s guidelines. During 2006, subsidiaries paid SEK 4 M (2) in income tax. Of profit for the year, SEK 309 M (161), one third or SEK 103 M (54) is distributable as a dividend, according to the Government s guidelines. Return and equity/assets ratio Return on equity after income tax and tax equivalent rose during 2006 by four percentage points to 9 per cent (5). LFV thus fulfilled the target of 8 per cent established by the Government. Return on capital employed was 6 per cent (4). Return on total assets was 5 per cent (4). The equity/assets ratio at year-end was 23 per cent (21), which means that LFV did not fulfil the target of 25 per cent established by the Government. The positive trend of return on equity and equity/assets ratio during the past five years can be seen in the charts below. Equity/assets ratio, Return on equity, % % Comments on balance sheets and funds statements > LFV 2006 < 35

40 Notes Amounts in SEK M (figures in brackets in running text refer to 2005). NOTE 1 Aviation revenue Wages, salaries and other remuneration, SEK M Boards, Director General and Managing Directors Other employees LFV Group State enterprise State enterprise 2 2 1,292 1,291 Passenger charges 1,165 1,088 1,165 1,088 Subsidiaries and En route charges 1,171 1,086 1,171 1,086 associated companies Take-off charges Aviation security Total, LFV Group 7 5 1,334 1,339 Ground handling charges The Director General and Group Chief Executive was paid Compensation for air SEK 1.7 M (1.2) in salary and remuneration during The navigation services Chairman of the Board was paid SEK 105,104. Each of the Other aviation revenue other Board members received between SEK 30,000 and SEK 3,877 3,712 3,877 3,712 30,910. NOTE 2 The Director General holds a special limited-term appointment according to the rules for Swedish State executives. His position entitles him to a pension according to the PA 91 State pension agreement. Other operating revenue If the Director General should be dismissed or not be offered LFV Group State enterprise equivalent new employment after his term of employment expires, a pension will be payable according to the ordinance Rents and leases on pensions to appointed officials. Car parking charges The other members of Group Management are covered by Commercial services the PA 03 State pension agreement and have notice periods Ground handling for termination in compliance with the State enterprise Property services agreement and the security of employment agreement in the Advertising revenue State sector. Capitalised work for own account The employment terms of the Managing Directors of subsi- Miscellaneous diaries are described in the annual report of each respective 2,103 1,971 1,981 1,840 company. Appointments held by the Director General and Board mem bers in other public authorities and limited liability companies are listed on pages Of other State enterprise revenue, 3.2 per cent (4.3) came from Group companies. NOTE 3 Absence due to illness (sick leave) Staff expenses and disclosures about staff, Director State enterprise General, Managing Directors, Boards of Directors and Auditors Total absence due to illness as a LFV Group State enterprise share of ordinary working hours: 4.6% 4.8% Share of total absence due to illness Wages and salaries 1,341 1,344 1,294 1,293 related to continuous absence of Employer social 60 days or more 71.9% 72.5% welfare fees Other staff expenses Absence due to illness, by gender: 2,138 2,079 2,066 2,002 Men 3.4% 3,6% Women 6.7% 7,0% Among employer social welfare fees were pension Absence due to illness, by age category: expenses, including Age 29 or younger 2.3% 2.5% special payroll tax, of Age % 4.0% Age 50 or older 6.9% 6.9% 36 > LFV 2006 < Accounts

41 Fee to auditors, SEK M NOTE 6 LFV Group State enterprise Profits on holdings in Group companies LFV Group State enterprise Swedish National Audit Office Auditing assignments KPMG Associated companies: - Auditing assignments Västerås Airport AB - Other assignments Share of profit in Ernst & Young associated company Öhrling PriceWaterhouse Cityflygplatsen i Göteborg AB Share of profit in associated companys Nordic Airport Properties AB NOTE 4 - Share of profit in associated company Various external expenses Entry Point North AB - Share of profit in LFV Group State enterprise associated company Re-sale expenses Property and rent expenses Materials, maintenance NOTE 7 and transport Travel expenses Interest income Outside services LFV Group State enterprise Administrative expenses ,915 1,869 1,925 1,872 Interest income from banks Of Various external expenses in the State enterprise, Interest income from 3.4 percent (2.8) came from Group companies. short-term financial investments Interest income from current receivables NOTE 5 Other interest income Depreciation/amortisation and write-downs LFV Group State enterprise Depreciation/amortisation: NOTE 8 Intangible assets (amortisation) Interest expenses Buildings LFV Group State enterprise Field structures Electrical installations Telecommunications National Debt Office equipment Banks Vehicles, machinery etc Interest portion of Leased installations pension expense Finance leases Write-downs: Other Intangible assets Buildings Field structures Electrical installations Telecommunications equipment Vehicles, machinery etc Leased installations ,187 1,188 1,154 1,151 Accounts > LFV 2006 < 37

42 NOTE 9 NOTE 10 Income tax and tax equivalent Intangible assets State enterprise LFV Group State enterprise Income tax payable for the year Acquisition value on - Group profit, excluding share of January associated companies, before taxes Acquisitions for the year Acquisition value on Minus: December 31 - Depreciation for tax purposes utilised Change in provision to tax Amortisation and allocation reserve 90 - write-downs on - Interest on tax allocation reserve 4 5 January Amortisation for the year Basis for calculation of income tax payable for the year Accumulated amortisation and write-downs on 28% of this December Minus: Taxes paid by subsidiaries and associated companies -4-2 Income tax payable for the year Future (deferred) income tax - Depreciation for tax purposes NOTE 11 - The year s change in tax Tangible fixed assets allocation reserve Buildings Residual value on December LFV Group State enterprise 28% of this Minus: Deferred taxes reported by subsidiaries 0-1 Acquisition value on January 1 8,382 8,242 8,327 8,174 Total future (deferred) income tax Acquisitions for the year Divestments/disposals Total income tax and tax equivalent Other adjustments The income statements of both the State enterprise and the LFV Group include income tax payable for the year as well as deferred income tax. Acquisition value on December 31 8,486 8,396 8,418 8,327 Depreciation and The total tax expense is calculated as follows: write-downs on January 1-3,330-3,014-3,314-2,990 Depreciation for the year LFV Group State enterprise Write-downs for the year Divestments/disposals Income tax payable Other adjustments for the year Accumulated Deferred tax depreciation and writedowns on December 31-3,634-3,342-3,616-3,314 Deferred tax is attributable to: Residual value on Tax allocation reserve December 31 4,852 5,054 4,802 5,012 Accumulated depreciation for tax purposes 1,433 1,171 1,426 1,164 1,508 1,336 1,501 1,329 Deferred tax liability (28%) > LFV 2006 < Accounts

43 Land Electrical installations LFV Group State enterprise LFV Group State enterprise Acquisition value on Acquisition value on January January 1 2,732 2,557 2,732 2,557 Acquisitions for the year Acquisitions for the year Other adjustments Divestments/disposals Acquisition value on Other adjustments December Acquisition value on December 31 2,775 2,732 2,775 2,732 Depreciation and Depreciation and write-downs on write-downs on January January 1-1,327-1,157-1,327-1,157 Adjustment of opening Depreciation for the year balance Write-downs for the year Depreciation for the year Divestments/disposals Accumulated depreciation Other adjustments and write-downs on Accumulated December depreciation and write-downs on Residual value on December 31-1,479-1,327-1,479-1,327 December Residual value on December 31 1,296 1,405 1,296 1,405 Aside from land values reported in the balance sheet, LFV manages State lands at Örnsköldsvik, Skellefteå and Göteborg- Landvetter Airports. This land was turned over by Telecommunications equipment the respective municipalities at no cost and is booked at SEK 0. LFV Group State enterprise Acquisition value on Field structures January 1 2,463 1,587 2,463 1,587 Acquisitions for the year 44 1, ,016 LFV Group State enterprise Divestments/disposals Other adjustments Acquisition value on Acquisition value on January 1 6,684 6,585 5,540 5,441 December 31 Acquisitions for the year ,439 2,463 2,439 2,463 Divestments/disposals Depreciation and Other adjustments write-downs on Acquisition value on January 1-1,180-1,188-1,180-1,188 December 31 6,770 6,684 5,625 5,540 Depreciation for the year Write-downs for the year Depreciation and Divestments/disposals write-downs on Other adjustments January 1-2,234-1,976-2,062-1,833 Accumulated Depreciation for the year depreciation and Write-downs for the year write-downs on Divestments/disposals December 31-1,245-1,180-1,245-1,180 Other adjustments Accumulated depreciation Residual value on and write-downs on December 31 1,195 1,282 1,195 1,282 December 31-2,503-2,233-2,302-2,062 Residual value on December 31 4,267 4,451 3,323 3,478 Vehicles, machinery etc LFV Group State enterprise The Arlanda Link is included in the Group accounts. The Acquisition value on acquisition value of the facility consists of railway facilities January 1 2,927 2,766 2,888 2,703 at Stockholm Central Station, Södra Böjen (The South Curve), Acquisitions for the year a railway inside Arlanda Airport and other railway facilities Divestments/disposals inside the airport. The facility also includes the so-called Other adjustments Norra Böjen (North Curve), i.e. the portion of the facility Acquisition value on that is not used by the airport shuttle and that was financed December 31 by a State grant. In addition, certain work was performed for 2,898 2,954 2,858 2,888 future commuter train services, financed using a State grant. Accounts > LFV 2006 < 39

44 Vehicles, machinery etc, continued Leased residual values LFV Group State enterprise LFV Group State enterprise Depreciation and Buildings write-downs on Electrical installations January 1-1,876-1,749-1,852-1,702 Telecommunications Depreciation for the year equipment Write-downs for the year Vehicles, machinery etc Divestments/disposals Other adjustments Accumulated depreciation and Construction in progress write-downs on LFV Group State enterprise December 31-1,936-1,903-1,908-1, Residual value on Acquisition value on December ,036 January Acquisitions for the year Completed new facilities Acquisition value on Leased fixed assets December LFV Group State enterprise During 2006, LFV received investment grants of SEK 3 M (2) Acquisition value on from central government authorities; SEK 0 M (0) from muni January cipal bodies; SEK 4 M (21) from the EU; and SEK 0 M (0) from Acquisitions for the year other parties. Divestments/disposals Other adjustments Most of the State enterprise s buildings have not been assig- Acquisition value on ned any assessed value for tax purposes. The SkyCity facility, December owned by the State enterprise since December 20, 2001, and the site leasehold officially designated Arlanda 2:2, held by Depreciation on LFV AirportCenter AB, have been assigned assessed values of January SEK 561 M and SEK 145 M, respectively. Appeals have been Depreciation for the year lodged against the assessed values that have been assigned. Write-downs for the year The local tax authority charged LFV AirportCenter AB real Divestments/disposals estate tax for 1994, which it is disputing by means of an Other adjustments appeal to the County Administrative Court. Accumulated depreciation and write-downs on December Residual value on December The State enterprise has paid real estate tax since NOTE 12 Holdings in Group companies Corporate ID Number Percentage of Nominal Book number of shares share capital value value Direct holdings Shares in Group companies, State enterpriset LFV Holding AB , Indirect holdings (via LFV Holding AB) Shares in Group companies LFV AirportCenter AB , Swedavia AB , Flygplatsfastigheter i Landvetter AB , Sturup Handling AB , Arlanda Schipol Development Company AB , Original acquisition value SEK 75 M. 40 > LFV 2006 < Accounts

45 NOTE 13 NOT 14 Holdings in associated companies Other long-term receivables LFV Group State enterprise LFV Group State enterprise Accumulated acquisition On January value On January Items added Divestment, Settlement, Eurocontrol Kallax Cargo AB Other long-term Addition, receivables Västerås Airport AB Depreciation on fixed Divestment, assets paid in advance Västerås Flygplats AB Addition, Entry Point North AB Share of profit in Book value associated company (Nap KB) for the year Accumulated share of profit etc, January Share of net profit in associated companies for the year Change in equity of associated companies for the year etc Book value NOTE 13, continued Holdings in associated companies Specification of State enterprise and LFV Group holdings in associated companies Corporate ID Number of Percentage Nominal Share of Book value number shares/ of share value adjusted participations capital equity LFV Group State enterprise Direct holdings -A-Banan Projekt AB , ) 1 Indirect holdings (via LFV Holding AB) - Cityflygplatsen i Göteborg AB , Nordic Airport Properties AB , Nordic Airport Properties KB Entry Point North AB , Original acquisition value SEK 5 M. On December 31, 2006, LFV sold its shares in Västerås Flygplats AB. In the income statement of the Group, the share of profit from associated companies is reported under two items. One is profit before taxes. The other is the share in the associated company s taxes paid, which is reported along with the Group s taxes (see Note 9). Accounts > LFV 2006 < 41

46 NOTE 15 Prepaid expenses and accrued revenue LFV Group State enterprise Miscellaneous prepaid expenses Accrued revenue, sales-based rent Accrued revenue NOTE Restricted reserves and unrestricted equity LFV Group State enterprise Restricted Unrestricted Restricted Unrestricted reserves equity reserves equity Opening balance, 2006, according to adopted balance sheet 1, Dividend Changes attributable to the Group s associated companies Transfer between unrestricted and restricted equity Profit for the year Closing balance, , , NOTE 17 Pension provisions LFV Group State enterprise On January 1 3,419 3,489 3,406 3,476 The year s pension provisions The year s pension disbursements ,582 3,419 3,568 3,406 Pension provisions represent the actuarially projected commitments under the PA 91 and PA 03 pension agreements, calculated by SPV, including actuarially calculated pension payments granted. NOTE 18 Other provisions LFV Group State enterprise Restructuring expenses Job security funds Other provisions NOTE 19 Liabilities to leasing companies LFV Group State enterprise Leasing companies NOTE 20 Liability to the National Debt Office LFV Group State enterprise On January 1 5,053 5,778 5,053 5,778 New borrowings 1, , Payments of loan principal -1, , On December 31 4,728 5,053 4,728 5,053 The total liability to the National Debt Office was SEK 4,728 M. The projected principal payment of SEK 100 M during 2007 was reported as a current liability. Additional loans that fall due for payment during 2007, SEK 1,289 M, will be rolled over and are therefore reported as a long-term liability. Maturity date, 1-5 years from balance sheet date SEK 3,853 M Maturity date, later than five years from balance sheet date SEK 875 M The average remaining maturity of interest refixing periods as of December 31, 2006 was 2.3 years (2.5), including inte rest rate derivative instruments. The approved ceiling on borrowing was SEK 7,700 M in 2006 and is SEK 7,700 M in > LFV 2006 < Accounts

47 NOTE 21 NOTE 23 Other long-term non-interest-bearing liabilities Contingent liabilities LFV Group State enterprise LFV Group State enterprise Prepaid traffic rights, Pension obligations to Arlanda Link subsidiaries and Interest-free loans associated companies Settlement, Eurocontrol Guarantee commitment 962 1, for Västerås Airport AB Liability as co-owner of associated companies Future rent obligations, NOTE 22 A-Banan Projekt AB Capital coverage Accrued expenses and prepaid revenue guarantees Other contingent LFV Group State enterprise liabilities Wages, salaries and other remuneration Holiday pay liability See also the description of obligations related to A-Banan Employer social Projekt AB in the Report of the Directors. welfare fees Accrued interest expenses State budget income items Other accrued expenses Prepaid revenue Surplus remitted by LFV Accounts > LFV 2006 < 43

48 Performance report according to the annual appropriations directive for LFV On December 14, 2005, the Swedish Government approved the annual appropriations directive for LFV for The directive presents the objectives of transport policy, of civil aviation and of the Swedish State s civilian airports and air navigation services. The directive also stipulates the performance report that LFV shall submit concerning how LFV has contributing to achieving such objectives. The following section presents the main contents of the directive and, inserted below each statement of objective, LFV s performance report. Policy field: Transport policy The overall transport policy objective is to ensure that citizens and businesses in all parts of the country are provided with transport that is effcient in terms of the economy as a whole and sustainable in the long term. Field of operations: Air travel Objective 1. An accessible transport system 2. High transport quality standards 3. Safe air travel 4. A good environment 5. Favourable regional development 6. An air transport system that provides gender equality. Branch of operations: State civil aviation airports and air navigation services Objective LFV shall contribute to the transport policy objectives for air travel in an economically effcient and profitable manner by operating and improving cost-effective, safe and well managed airports and air navigation services. Performance report LFV shall report its return on equity and equity/assets ratio. The long-term target for return on equity is that profit after tax equivalent shall amount to 8 per cent of equity. The outcome for 2006 was 9 per cent. The 2006 target for the equity/assets ratio is 25 per cent, after which equity/assets ratio shall amount to at least 25 per cent long-term. The outcome for 2006 was 23 per cent, and As a restriction on price increases, traffc charges excluding air navigation charges en route, aviation security charges and noise-related charges may increase by no more than the Net Price Index, measured starting in During 2006, LFV remained below this price ceiling. An accessible transport system and favourable regional development Accessibility for citizens and businesses between regions and the world at large as well as between population centres and the world at large shall be improved. The percentage of people with special needs who can utilise air travel shall increase. No later than 2010, the air transport system should be accessible to people with disabilities. Performance report LFV shall report how LFV takes into account the needs of people with disabilities when making major changes in the terminal areas of its airports. LFV is working to achieve the disability policy objective that no later than 2010, the air transport system shall be accessible to people with disabilities. As one of various examples of this work, for years there has been a well-developed assistance and information service at all LFV airports. LFV also applies special guidelines when renovating, extending and constructing terminals, which among other things state how the infrastructure shall be designed to meet the needs of the disabled in a satisfactory way. To date, air travel has succeeded very well, as confirmed by the annual questionnaires concerning public transport accessibility for people with disabilities that are conducted jointly by the public agencies in charge of four modes of transport as well as the National Public Transport Agency and the National Board of Housing, Building and Planning. High transport quality standards Delays in commercial air travel shall diminish, among other things through improvement and effcient management of the State s airport system and air navigation services. Performance report LFV shall present statistics on delays in air traffc as well as an overall report on their causes. Causes that lie within LFV s sphere of responsibility shall be reported separately. In addition, the steps that LFV has taken shall be reported. LFV monitors the punctuality of Swedish air travel monthly through the Delay Analysis Report at Swedish Airports (DARSA) system, which records delays at Stockholm-Arlanda Airport. Due to Stockholm-Arlanda Airport s function as a central hub for domestic traffc, these statistics can in all essential respects be regarded as representative of Swedish air travel. The statistics indicate that between 2005 and 2006, delays at Stockholm-Arlanda Airport increased by about 3.6 percentage points. The single largest reason for shortcomings in punctuality is the influence of weather, a factor that causes variations in the reporting from year to year. Most shortcomings in punctuality for departing international passengers are attributable to aircraft arriving late from abroad, conditions where aircraft are kept in Sweden as a result of traffc congestion in European airspace or a lack of landing opportunities. Swedish domestic traffc works very well, with relatively few serious delays. 44 > LFV 2006 < Performance report

49 Popular to get married at Stockholm-Arlanda Airport In 2006, 555 couples got married at the airport. Most couples chose to say their wedding vows at the Arlanda VIP Service, where full service is included. VIP staff members take care of baggage, tickets and passports and check in the couple while the wedding is under way. The most popular wedding months are May-June, with a subsequent honeymoon trip often to the Mediterranean countries, and December-January, when the couple s honeymoon destination is Thailand or some other sunny South East Asian paradise. Performance report > LFV 2006 < 45

50 LFV participates in international efforts to solve the congestion problem in Central Europe. Meanwhile LFV airports make continuous investments aimed at improving their passenger and aircraft flows. Delays are reported according to the 99 delay codes of the International Air Transport Association (IATA). Of these, only about six are related to airports and two are related to air traffc control systems. This provides an indication of the number of reasons for delays that may be connected to other circumstances and organisations. The most common cause of delays at LFV s large airports, after late-arriving aircraft, is technical problems. Despite very thorough and well-planned maintenance and reserve capacity in systems, such problems nevertheless sometimes arise. One key facility of great importance to the airport is the one that handles sorting and security screening of cargo hold baggage. The external electricity supply is also of vital importance to the smooth functioning of an airport. To combat delays, Stockholm- Arlanda Airport deliberately maintains an infrastructure with built-in Passengers Passengers Stockholm-Arlanda Airport Punctuality, domestic traffic 2006 national traffc is larger than domestic traffc also influences emissions. Halm 3,000,000 stad Airport was not included dur 2,500,000 ing 2006 and Norrköping Airport was not included from July 1, 2006 onward. 2,000,000 LTO is counted up to an altitude of 915 1,500,000 metres. 1,000, , ,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 margins that allow the airport to handle constantly varying aircraft sizes during peak traffc. In addition, Stockholm- Arlanda Airport uses a very effcient but resource-intensive snow removal methodology in order to minimise delays during snow removal. Overall, because of these and numer- ous other measures, from a statistical perspective Stockholm-Arlanda Airport does not cause delays but instead helps to reduce delays caused elsewhere in the air travel system. Put simply, aggregate delay times for arriving passengers during 2006 were larger than aggregate delay time for those departing from the airport during the same year. Data from the Association of European Airlines (AEA) show that Stockholm-Arlanda Airport is among the foremost airports in Europe in terms of punctuality. A good environment LFV shall help achieve the subsidiary objectives of air travel policy and the national objectives for a good environment. Performance report LFV shall report: how much it has reduced its atmos pheric emissions of fossil carbon dioxide from its own operations, how its monitoring of the number of people exposed to noise has improved and what steps it has taken to reduce noise disruption, Depatring passengers Arriving passengers Total number of passengers Delay of min. Delay of min. Delay >60 min. Stockholm-Arlanda Airport Puctuality, international traffic, 2006 Departing passengers Arriving passengers Total number of passengers Delay of min. Delay of min. Delay >60 min. how it has worked to reduce the adverse effects on runoff water recipients from airport operations, and the percentage of public transport riders at its airports as well as its efforts to increase to percentage of public transport riders to and from LFV airports, as well as other meas ures to reduce the environmental impact of ground transport services. Atmospheric emissions of fossil carbon dioxide Atmospheric carbon dioxide emissions from LFV s operations excluding business travel continued to diminish for the fifth straight year. Compared to 2005, the decrease was about 9 per cent. Preliminary figures that include busi ness travel also show a reduction. During 2006, LFV also continued to manage its purchases and leases of cars in such a way that most of them are environmentally clean cars. During 2006, clean cars accounted for 96 percent of the total. Emissions from the landing and take-off (LTO) cycle rose by about 1 per cent during The explanation may be that aircraft movements decreased while the number of passengers increased. The fact that inter- Emissions from LFV s own operations Year CO 2 NO X HC [tonnes] [tonnes] [tonnes] , , , , , Emissions during LTO cycle from civil aviation at LFV airports Year CO 2 NO X HC SO 2 [tonnes] [tonnes] [tonnes] [tonnes] CO 2 kg/passenger Emissions per passenger ,8 4,0 0,6 3,5 0,4 3,0 0,2 2,5 0, CO 2 kg/passenger NO x g/passenger 2,0 Emissions from LFV s operations per passenger, including business travel, are included in CO 2 starting in 2006, excluding employees own business travel by car. NO x g/passenger 46 > LFV 2006 < Performance report

51 Noise, measures and monitoring There was an improvement in monitoring of the number of people exposed to noise, because new software was placed in service during This software enables LFV to perform a more exact calculation of the third highest maximum level and has further development potential. During 2006, LFV performed 85 noise insulations in all. A total of about 467 properties have been noise insulated, and the investment to date has amounted to SEK 60.7 M. The number of environmentally related complaints at LFV airports during 2006 was about 880, and the number of people complaining about 430. Noise-related issues accounted for 98 per cent of complaints. The number of changes in flight paths/procedures that went into service during the year was two. Reducing the effects of run-off water A measuring station was installed at Stockholm-Bromma Airport, and glycol use decreased compared to the corresponding period of A snow and de-icing hall went into service at Stockholm-Arlanda Airport during the year. At Luleå Airport, recovery of glycol worked well and about 80 m 3 of 100 per cent glycol was recovered. Phase-out of chemicals on PRIO list The task of phasing out chemicals on Sweden s offcial PRIO list of hazardous substances continued during LFV s new chemical management system was placed in service and training took place. To take the first step towards replacing chemicals, an inventory of products was completed at 12 out of 17 airports and at all other units. Other units have few or no chemicals on the PRIO list, and there are no replacement products today for these few chemicals. Consumption of anti-skid agents tonnes 3,000 2,500 2,000 1,500 1, Urea, tonnes Acetate, tonnes Formiate, tonnes Increasing the percentage of public transport riders and other steps to reduce environmental impact of ground transport According to a survey conducted during 2006 at LFV airports, public transport passengers as a share of all ground transport to and from airports rose by about 3.5 percentage points compared to Public transport options improved due to more frequent departures as well as adjustments in timetables to flight schedules and employee working hours. Information about existing public transport improved, mainly by ensuring that it is easily available to travellers on airport websites and also through better signage. In addition, loading zones and parking were adjusted to promote public transport at a number of airports. New steps to increase public transport use are under way at several airports in consultation with local governments and bus operators. At a number of airports, employees practise ride-sharing. This increased after changing staff schedules. Other measures are the introduction of maximum engine idling times and environmentally oriented taxi agreements, for example ecotaxis and environmentally certified companies. Subsidised parking spaces for clean vehicles as well as replacement of LFV s service vehicles with clean vehicles are other measures. During 2006, Stockholm-Arlanda Airport placed three biogas-powered buses in service. The number of ecotaxis rose from 35 when the system began to 514 in August This meant that ecotaxis accounted for about one third of taxi trips. Stockholm-Arlanda signed an agreement with Svensk samåkningstjänst, a car-pooling service that matches employees based on recorded preferences. A good environment LFV shall work towards increased travel on public transport to and from Stockholm-Arlanda Airport. During 2006, public transport options to and from Stockholm-Arlanda improved. The biggest change concerned the Upptåget commuter train, which now continues south of Uppsala and stops at Stockholm-Arlanda Airport on its way to the new end station in Upplands Väsby. Its route enables air travellers and airport-based employees departures every half hour by train both northward to Uppsala, Tierp and Gävle and southward to Upplands Väsby, where they can transfer to the Stockholm Transport (SL) commuter train for easy access to various suburbs in the northern Stockholm region. When Upptåget went into service, bus service was reorganised to enable airport-based employees to take the bus more easily to work. SL is now using ethanol buses between Märsta and Stockholm-Arlanda Airport. Two departures on the Arlanda Express shuttle train were also added. This information was highlighted and clarified on the LFV website. Performance report > LFV 2006 < 47

52 Other objectives LFV shall report the size of total energy use in its premises and what form of energy was used. It shall also report what steps it has taken to reduce and streamline total energy use. Performance report Energy use and streamlining During 2006, LFV purchased renewable energy certificates equivalent to its entire annual consumption. LFV s net emissions from the production of purchased electricity can thus be regarded as zero. Total energy use in LFV premises at airports and the head offce was 270 GWh during During 2005, consumption at airports was 268 GWh. Energy collaboration Arlanda Energi and the Group Airports Division started a collaborative energy project in During the period , its targets include reducing energy use at Stockholm-Arlanda Airport by 25 per cent compared to During 2006, LFV managed to reduce total energy use of its operations at Stockholm-Arlanda Airport by 8 per cent (12.5 GWh). Recalculated in terms of environmental impact, the reduction was equivalent to about 7,000 tonnes of CO 2. Starting in 2006, LFV s energy solutions for its operations are entirely carbon dioxide neutral. The measures undertaken at Arlanda and the Group Airports Division signified a total reduction in energy consumption in the form of electricity and heat equivalent to 18 GWh. The measures employed are: A focus on energy streamlining in management work, employing management by objectives and clear objectives. Lighting management based on opera ting times and voltage regulation. Adapting ventilation to activities in premises through management of operating times, air intake and temperature. Energy consumption by energy sources, 2006 Electricity 176 GWh (64.2%) Oil 20 GWh (7.3%) Biofuel 17 GWh (6.2%) District heating, including underground heat 61 GWh (22.3%) Total energy use at LFV airports Year Total Total Heat energy electricity [GWh] [GWh] [GWh] More information Additional information on LFV s environmental impact, targets and emissions from LFV operations will be reported on LFV s website. For more detailed information, please contact each airport. Organisational management In addition to reporting that shall be provided according to Chapter 7, Section 3 of the Ordinance on Annual Reports and Budget Material, LFV shall also report total absences due to illness as a percentage of total regular employee working time at division level. Absence due to illness in other units shall be reported as one item. Performance report Total absence due to illness (sick leaves) continues to decrease and totalled 4.6 per cent during 2006, calculated according to the general advice of the Swedish National Financial Management Authority (ESV). Sick leaves are higher for women than for men. In particular, long-term sick leaves are substantially higher for women aged 56-65, with an average leave of 30 days per woman employee. The corresponding figure for men is 12 days. Total absence due to illness, % 4.8% 4.6% Breakdown by division and other Group units Total ANS Stockholm Group Other Airports units % 2.5% 4.7% 6.6% 4.4% Total absence due to illness as a percentage of regular working time Men Women Total Age % 1.9% 3.1% 3.8% 2.3% 2.5% Age % 2.7% 5.1% 5.9% 3.7% 4.0% Age 50 and above 5.0% 5.4% 11.5% 10.8% 6.9% 6.9% Total 3.4% 3.6% 6.7% 7.0% 4.6% 4.8% Percentage due to absences of 60 days or more 68.6% 68.3% 75.1% 76.5% 71.9% 72.5% 48 > LFV 2006 < Performance report

53 Multi-year overview LFV had another successful year in The continued expansion of international traffic and favourable earnings from commercial ventures were the main reasons for improved earnings. For the first time since 2000, LFV was able to meet the financial target of a return equivalent to 8 per cent of equity. The events of September 2001 together with a deep and lengthy economic downturn caused passenger volume at LFV s airports to decline by 15 per cent over the three-year period After this sharp downturn, passenger numbers have again climbed in recent years. The increase that began in 2004 and accelerated in 2005 also continued during At LFV airports, the increase in international passenger numbers was 7 per cent during The increase was even stronger during the first half of 2006 and slowed somewhat in the second half. The trend in domestic aviation was weaker, however, with a 2 per cent decline in During the traffc downturn, LFV completed the largest capital spending programme in its history. This was due to its investment in a third runway at Stockholm-Arlanda Airport, an expanded terminal system as well as a new air traffc control system. The traffc downturn during the period as well as increased capital and operating expenses due to the capital spending programme led to earnings reductions at LFV of about SEK 1 billion. To offset this deterioration in earnings, in the autumn of 2001, LFV initiated an action programme calling for a lasting improvement in LFV s earnings of SEK 1 billion by the end of This action programme had achieved its desired effect earlier, meeting its target by the end of During 2006, LFV has attached great importance to consolidating the effects of the action programme and ensuring that low cost increases and high productivity increases will last. Revenue Over the past decade, LFV s revenue rose from SEK 4,316 M in 1997 to SEK 5,980 M in This was equivalent to an average increase of about 4 per cent annually. During the same period, the number of air travel passengers at LFV s airports increased by nearly 4 million, or an average of nearly 2 per cent annually. During the second half of the 1990s, the aviation industry experienced a very expansive period, with passenger increases in the range of 5-7 per cent annually and roughly equally large revenue increases for LFV. Beginning in 2001, a sharp downturn in passenger volume began. During a three-year period, this very adversely affected the entire aviation industry, and thus also the finances of LFV. Among the reasons were an economic downturn, changes in the aviation industry, the attacks on the World Trade Center in New York, the Iraq war and the SARS epidemic in East Asia. The main reason why LFV maintained its revenue levels during these years was that the extensive security measures enacted after September 11, 2001 were largely financed by charges. Starting in the autumn of 2004, however, there was a turnaround in air traffic volume. To further stimulate the market, LFV has now also been able to lower prices. This will continue during Starting on January 1, 2007, LFV is lowering charges, mainly related to international traffc, by the equivalent of nearly SEK 100 M. This has helped bring about higher traffc volume which, together with aggressive investments in Equity/assets ratio and return on equity % Revenue and capital spending SEK M 6,000 5,000 4,000 3,000 2,000 1, Profit after financial items SEK M Equity/assets ratio Return of equity Capital spending Of which, Arlanda Link Revenue Profit after financial items Profit excluding effect of 1999 District Court ruling The above three charts show developments during the decade in terms of profit after financial items, equity/assets ratio, return on equity, capital spending and revenue. The downturn in earnings, equity/assets ratio and return in 1999 was due to the district court ruling in a dispute with SAS concerning rental income at Terminal 2 at Stockholm-Arlanda Airport (item affecting comparability of SEK -659 M) plus the investment in A-Banan Projekt AB (SEK 1,144 M). The changes after 2000 were a consequence of decreased traffic and large investments. Between 2000 and 2003, passenger volume fell by 15 per cent, while major investments were completed and extensive steps were taken to improve airport security. Multi-year overview > LFV 2006 < 49

54 commercial operations, has contributed to higher revenue and improved earnings. Expenses Over the past decade, operating expenses rose from SEK 3,772 M in 1997 to SEK 5,240 M in This represented an average annual increase of nearly 4 per cent, in other words largely the same average rate as for revenue. Of the increased expenses, inflation accounted for an average of just above 1 per cent annually. During the period, depreciation rose by about SEK 630 M due to the extensive capital spending programme that had been implemented, which meanwhile also meant increased operating expenses for managing and maintaining facilities. As a direct consequence of higher security screening and airport security standards, expenses have risen by nearly SEK 400 M since Earnings During the period, profit after financial items varied sharply between a maximum of SEK 633 M (in 2000) and SEK -48 M (in 2003). During the late 1990s, LFV generated very favourable earnings, which was also a prerequisite to achieving its objectives, considering the extensive capital spending programme it had initiated. The exception to the positive trend of the 1990s was LFV s earnings in 1999 (SEK 18), which reflected items affecting comparability of SEK 659 M due to a provision because LFV lost a legal dispute with SAS related to Terminal 2 at Arlanda and was ordered by a district court to repay rental income to SAS. During the years , LFV s profitability fell sharply due to the crisis in the entire aviation industry. In 2003, LFV reported a loss for the first time (SEK -48 M). The next few years represented an earnings recovery. LFV s 2006 profit after financial items (SEK 447 M) was the best since 2000, signifying that LFV s finances are once again in balance and meet its owner s established target for return on equity. Capital spending During the period , LFV s capital spending totalled more than SEK 16 billion. Spending peaked in 2000 and 2001 at nearly SEK 3 billion per year. Most investments have been related to expansion and modernisation of Stockholm-Arlanda Airport as well as a new air traffc control system. Because capacity expansions are now expected to meet market demand, over the past three years LFV s capital spending levels have been significantly lower. 50 > LFV 2006 < Multi-year overview

55 Ten-year summary Air traffic (000) Number of landings Number of passengers 1 29,601 28,837 27,560 26,135 28,063 30,481 30,846 28,982 27,508 25,647 Cargo and mail forwarded (tonnes) Financial data (SEK M) Income statement Operating revenue 5,980 5,683 5,821 5,402 5,384 5,088 5,007 4,719 4,469 4,316 Operating expenses -5,240 5,132 5,306 5,109 4,884 4,919 4,151 4,549 3,694 3,722 of which, items affecting comparability Profit on holdings in associated companies Operating profit Financial income Financial expenses Profit after financial items Income tax and tax equivalent Minority share Profit for the year Balance sheet Fixed assets 13,491 13,865 14,273 14,677 14,736 13,559 11,375 9,603 7,349 7,367 Current assets 1,148 1,099 1,093 1,163 1,175 1,419 1,192 1,613 1,613 1,170 Equity 3,437 3,130 2,998 2,908 2,985 2,882 2,805 2,354 2,403 1,943 Deferred tax, provisions and long-term liabilities etc 9,725 9,833 10,787 11,691 10,977 10,243 8,202 7,142 5,499 5,729 Current liabilities 1,477 2,001 1,581 1,241 1,949 1,853 1,560 1,467 1, Total assets 14,639 14,964 15,366 15,840 15,911 14,978 12,567 10,963 8,962 8,537 Miscellaneous Capital spending ,358 2,081 3,224 2,660 2, Financial ratios, % Equity/assets ratio Return on equity (after income tax and tax equivalent) Return on capital employed Return on total assets Staff Number of full-time equivalent employees 3,418 3,489 3,786 3,810 3,789 3,829 3,738 3,633 3,540 4,068 1 Starting in 2000, this figure includes both the number of arriving and departing passengers in domestic traffic. Until 1999 only departing passengers were reported when the number of passengers was summarised. In the table above, the figures for have been recalculated according to the new reporting method. 2 Of which, SEK 1,754 M in LFV capital spending and SEK 1,144 M in initial valuation of the Arlanda Link. 3 Beginning in 2001, the interest portion of pension expenses is reported as a financial expense. Pension expense was previously reported under operating expenses. NOTE: Until the end of 2004, the Swedish Aviation Safety Authority and the Aviation and Public Sector Department were included in the table. Since 2005, these units have been part of the Swedish Civil Aviation Authority. Multi-year overview > LFV 2006 < 51

56 Proposed dividend The dividend target is one third of profit for the year. For 2006, this means one third of SEK 309 M, or SEK 103 M. Income tax payable amounts to SEK 77 M. Norrköping, February 23, 2007 Göran Tunhammar, Chairman Lars Rekke, Director General Karin Strömberg, Vice Chairman Lars Andersson Agneta Gille Anna Grönlund Krantz Gun Nilsson Mats Nilsson Sven-Erik Olsson Sture Palmgren Annette Stavenow The Auditors Report of the Swedish National Audit Office regarding this Annual Report was submitted on February 27, Leif Lundin, Audit Director Anne Bryne, Senior Auditor Definitions Absence due to illness Current liabilities Long-term liabilities Service unit (according to ESV general Liabilities due for payment during Liabilities due for payment no ear- An aircraft that weighs 50 tonnes advice) the coming accounting year. lier than in one year. and flies 100 km in Swedish airspace Total absence due to illness as a must pay an air navigation charge percentage of total employee work- Debt/equity ratio Return on capital employed for one service unit. ing hours. Absence due to illness Interest-bearing liabilities as a Profit after depreciation plus refers to absence during the period percentage of equity. financial income as a percentage Staff turnover that an employee is entitled to sick of the average balance sheet total Total number of employees pay from his/her employer, daily Depreciation minus non-interest-bearing current (externally and internally) recruited sickness allowance from the Swedish The acquisition cost of a fixed liabilities. during the year for permanent posi- Social Insurance Administration, asset divided into equal annual tions as a percentage of permanent temporary sickness benefit or activ- amounts during its estimated Return on equity (after income employees on January 1. ity compensation from the Social economic service life. tax and tax equivalent) Insurance Administration. The Profit after income tax and tax State funds initial unpaid day is included in Equity equivalent as a percentage of aver- Funds provided by the State, absence due to illness. State funds plus restricted reserves age equity. Equivalent to return on on which a return is due. and unrestricted equity. adjusted equity after tax equivalent. Capitalised interest Tax equivalent Interest expenses attributable to Equity/assets ratio Return on total assets Equivalent to corporation tax. facilities under construction are Equity as a percentage of total Profit after depreciation plus included in acquisition value. Such assets. financial income, as a percentage of interest expenses comprise the por- the average balance sheet total. tion of the State enterprise s actual Fixed assets interest expenses that would have Assets intended for use over three been avoided if the capital expendi- or more years. ture had not occurred. 52 > LFV 2006 < Proposed dividend and definitions

57 Auditors Report February 27, 2007 The Government Ministry of Industry, Employment and Communications Auditors report for Luftfartsverket (LFV) and the LFV Group The Swedish National Audit Offce (Riksrevisionen) has examined LFV s Annual Report, approved February 23, 2007, for the financial year The Group Management of LFV is responsible for running LFV effciently and according to law. This responsibility includes providing the Government with a reliable account of operations in the Annual Report. It is the responsibility of the National Audit Offce to examine LFV s Annual Report in accordance with general accepted auditing standards in Sweden in order in order to assess whether the financial statements and the underlying accounts are reliable and the accounts are true and fair, as well as to examine whether the administration of the Group Management complies with applicable regulations and special Government rulings. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance to determine whether the Annual Report is true and fair. The examination thus involved a selection of important transactions and administrative decisions. In the judgement of the National Audit Offce, the audit that we have completed has provided suffcient and appropriate auditing evidence for our opinion set out below. The Annual Report has been prepared in compliance with the Ordinance on Annual Reports of Public Authorities and Budget Material, the Government s annual appropriations directives and other decisions concerning LFV. In the opinion of the National Audit Offce, the Annual Report is true and fair in all essential respects. Leif Lundin, Audit Director, has taken this decision. Anne Bryne, Senior Auditor, has served as rapporteur. Leif Lundin Anne Bryne Auditors Report > LFV 2006 < 53

58 Board of Directors and Auditors Göran Tunhammar Lars Rekke Karin Strömberg Anna Grönlund Krantz Sture Palmgren Agneta Gille Göran Tunhammar, Governor of Skåne County, Chairman, Board of Directors, LFV, Chairman of the Board, AMF Pension; Board member, Pension Guarantee Mutual Insurance Company, Lars Rekke, Director General. Director General and Board member, LFV, 2001-, Nordic Airport Properties (NAP), 2002-; Board member, National Government Employees Pension Board, 2004-; member, Advisory Council of the Swedish National Financial Management Authority, 2004-; Board member, AIK Fotboll AB, 2004-; Chairman of the Board, LFV Holding AB, Karin Strömberg, Vice Chairman of the Board, LFV, 2004-, Board member, LFV, 2003-, business owner, Lars Andersson, Senior Repair Technician. Board member (employee representative), LFV, 1995 Agneta Gille, Member of Parliament, Social Democrats. Board member, LFV, 2004.; member, Parliamentary Committee on Finance, 2002-, Chairman, Upplands Lokaltrafik, 2003-; member, Board of the Uppsala County Administration, Anna Grönlund Krantz, Consultant, JKL, 2006-; Board member, LFV, 2001-; member of the Liberal Party Board, Gun Nilsson, Deputy CEO, Duni Group. Board member, LFV, 2005-; Board member, Husqvarna, 2006-; Swedish Golf Federation, Mats Nilsson, Lieutenant General. Board member, LFV, 2001-; Director Armed Forces Training and Procurement, Swedish Armed Forces Headquarters, > LFV 2006 < Board of Directors and Auditors

59 Gun Nilsson Mats Nilsson Annette Stavenow Lars Andersson Sven-Erik Olsson Sven-Erik Olsson, Field and Apron Supervisor. Board member (employee representative), LFV, Chairman, Aviation Department, Swedish Federation of Civil Servants (ST), Sture Palmgren, Senior Partner, Kreab Group. Board member, LFV, 2004-; Chairman of the Board, Semako AB, 2003-; Board member, Alstom Transport AB, 2004-, Magnora AB, Annette Stavenow, Head of Marketing and Development, GUC Media upper secondary school. Board member, LFV, Member, Uppsala Municipal Council, 2002-, Christian Democrats; Chair, Christian Democratic Enterprise Council, 2003-; member, Uppsala Regional Development Council, Auditors for LFV Leif Lundin, Audit Director, Swedish National Audit Office (Riksrevisionen) and Anne Bryne, Senior Auditor, Swedish National Audit Office. Board of Directors and Auditors > LFV 2006 < 55

60 Group Management Lars Rekke, Director General, Executive Management Team Kerstin Lindberg Göransson, Airport Director, Head of Stockholm Division, Deputy General Director, Executive Management Team Thomas Allard, Head of Air Navigation Services Division, Executive Management Team Olle Sundin, Head of Group Airports Divisions, Executive Management Team Karin Apelman, Finance Director, Executive Management Team Dan Lundvall, Director Group Marketing Håkan Jonforsen, Technical Director Lars Röhne, Director Group Communications Per Grönwall, Director Group Legal Affairs Per Edström, Director Human Resources 56 > LFV 2006 < Group Management

61 Addresses To dial these telephone and fax numbers from inside Sweden, omit the international access code (+46), then add zero in front of the area code when dialling the rest of the number. Luftfartsverket, LFV SE Norrköping, Sweden Telephone Fax Göteborg-Landvetter Airport SE Landvetter, Sweden Telephone Fax Airport Director: Gunilla Rittgård Jönköping Airport SE Jönköping, Sweden Telephone Fax Airport Director: Hazze Sandström Karlstad Airport Våldalen 570 SE Karlstad, Sweden Telephone Fax Airport Director: Peter Landmark Kiruna Airport Box 831 SE Kiruna, Sweden Telephone Fax Airport Director: Ulf Mukka Luleå Airport Flygstationsvägen 4 SE Luleå, Sweden Telephone Fax Airport Director: Lars Karbin Malmö Airport Box 14 SE Malmö-Sturup, Sweden Telephone Fax Airport Director: Lennart Björk Ronneby Airport Mailbox 2000 SE Kallinge, Sweden Telephone Fax Airport Director: Jim Magnusson Skellefteå Airport SE Skellefteå, Sweden Telephone Fax Airport Director: Robert Lindberg Stockholm-Arlanda Airport SE Stockholm-Arlanda, Sweden Telephone Fax Airport Director and Head of Stockholm Division: Kerstin Lindberg Göransson Stockholm-Bromma Airport SE Bromma, Sweden Telephone Fax Airport Director: Marie-Louise Reinius Sundsvall-Härnösand Airport SE Timrå Telephone Fax Airport Director: B-O Lindgren Umeå Airport SE Umeå, Sweden Telephone Fax Airport Director: Karin Larsson-Tängdén Visby Airport SE Visby, Sweden Telephone Fax Airport Director: Gunilla Dufour Åre Östersund Airport SE Frösön, Sweden Telephone Fax Airport Director: Kerstin Angantyr Ängelholm-Helsingborg Airport SE Ängelholm, Sweden Telephone Fax Airport Director: Rose-Marie Östberg Örnsköldsvik Airport Västanå SE Husum, Sweden Telephone Fax Airport Director: Robert Gyllrot Group Airports Division SE Landvetter, Sweden Telephone Fax Head of Group Airports Division: Olle Sundin Air Navigation Service Division SE Norrköping, Sweden Telephone Fax Head of Air Navigation Services Division: Thomas Allard LFV Holding AB SE Norrköping, Sweden Telephone Fax Managing Director: Karin Apelman Arlanda Schiphol Development Company AB Box 39 SE Stockholm-Arlanda, Sweden Telephone Fax: Managing Director: Gert-Jan de Graaff Flygplatsfastigheter i Landvetter AB Box 2105 SE Landvetter, Sweden Telephone Fax Managing Director: Elsa Thuresson LFV AirportCenter AB Box 24 SE Stockholm-Arlanda, Sweden Telephone Fax Managing Director: Thomas Cassel Sturup Handling AB Box 6 SE Malmö-Sturup, Sweden Telephone Fax Managing Director: Peter Fältsjö Swedavia AB Swedish Aviation Development AB SE Norrköping, Sweden Telephone Fax Managing Director: Sture Ericsson TEXT: Group Finance, Communications and LFV Group Support GRAPHIC DESIGN: Creation TRANSLATION: Victor Kayfetz PHOTOGRAPHY: Kenneth Hellman GRAPHICS: Martin Wande PRINTED BY: LFV Tryckeri PAPER: MultiDesign, 200/130 g. Addresses > LFV 2006 <

62 SE Norrköping, Sweden. Telephone: Fax: Swedish corporate ID number Website: