LANDIC PROPERTY BONDS VIII (SVERIGE II) Annual report for 2008 Reported on the NASDAQ OMX Copenhagen on 7 April 2009 (The Danish version has been reported to NASDAQ OMX Copenhagen on 2 April 2009) Summary: Unsatisfactory profit for the company, Landic Property Bonds VIII (Sverige II) A/S The consolidated income statement shows a loss of DKK 157,5 million (2006/07: negative DKK 6.5 million), and the consolidated balance sheet shows equity at 31 December 2008 of negative DKK 146.6 million (2006/07: DKK 3.8 million). The loss for the period has materially shown as the result of negative value adjustments of investment properties, debt and derivatives of net negative DKK 180.2 million (2006/07: negative DKK 54.6 million) and exchange adjustment of negative DKK 68 million on intercompany accounts due to a weakening of SEK. Operating profit before value adjustments on investment properties, deb and derivatives, net and tax amounts to negative DKK 18.1 million which is lower than expected (2006/07: DKK 37.7 million), due to the exchange adjustment mentioned above. The financial period represents 12 months. Last year, the financial period represented 15 months. In the financial period, rental income has been received as planned from the properties, and the activities have been carried out as expected. The parent company, Landic Property Bonds VIII A/S, has in 2008 committed to inject capital of SEK 120 million to Landic Property Bonds VIII AB. Management considers the performance unsatisfactory. Please address questions relating to this Announcement to Company Secretary Klaus T. W. Lund on telephone +45 3378 4000. Disclaimer; This is an unauthorised translation of the Danish original document. In the event of inconsistency, the Danish version shall apply. DoubleClick [here] to insert a picture in this frame DoubleClick [here] to insert a picture in this frame DoubleClick [here] to insert a picture in this frame Notice to the Stock Exchange no. 35 Landic Property Bonds VIII (Sverige II) A/S Fanøgade 15 2100 København Ø Central Business Registration 29213364 Info@landicproperty.com www.landicproperty.com T (+45) 3378 4000 F (+45) 3378 4001
Contents Company details 1 Financial highlights 2 Management s review 3 Shareholder information 8 Statement by Management on the annual report 10 The independent auditors report 11 Income statement 13 Balance sheet 14 Cash flow 16 List of notes 17 Notes 18
Company details Landic Property Bonds VIII (Sverige II) A/S c/o Landic Property Fanøgade 15 2100 Copenhagen Ø Telephone: +45 3378 4000 Fax: +45 3378 4001 www.landicproperty.com info@landicproperty.com Central Business Registration no.: 29 21 33 64 Established on: 7 October 2005 Registered office: Copenhagen Supervisory Board Gunnar Petersen (Chairman) Michael Sheikh Klaus T. W. Lund Executive Board Michael Sheikh Company auditor Deloitte Statsautoriseret Revisionsaktieselskab Birkerød Kongevej 25 C 3460 Birkerød The Annual General Meeting will be held on 30 April 2009. 1
Consolidated financial highlights 2008 2006/2007 2005/2006 12 months 15 months 16 months DKK 1,000 DKK 1,000 DKK 1,000 Revenue 254,445 326,534 159,423 Operating expenses -95,825-120,363-42,242 Value adjustment of investment properties and debt, net -180,204-54,551-39,680 Realised gain on sale of investment properties 4,183 235 0 Gross profit/loss -17,402 151,855 77,501 Administrative expenses -2,838-3,341-9,654 Financial expenses, net -178,102-165,340-105,271 Loss for the period before tax -198,341-16,826-37,424 Tax on loss for the period 40,851 10,283 7,131 Loss for the period -157,491-6,543-30,293 Fixed assets 1,788,997 2,258,143 2,362,318 Current assets 127,223 111,402 57,113 Total assets 1,916,220 2,369,545 2,419,431 Share capital 40,000 40,000 40,000 Equity -146,601 3,796 9,843 Liabilities 2,062,820 2,365,749 2,509,588 Total equity and liabilities 1,916,220 2,369,545 2,419,431 Cash flows from operating activities 38,226 111,058 68,976 Cash flows from investment activities, net 6,363-10,172-2,387,477 Cash flows from financing activities -33,652-41,888 2,359,962 Total cash flows 10,937 58,998 41,461 Ratios Return on equity (after tax) N/A -95.9% -307.8% Solvency Neg. 0.2% 0.4% Net asset value Neg. 0.1 0.2 Share dividends 0% 0% 0% Number of employees at year-end 0 0 0 The ratios have been calculated according to the Recommendations and Ratios 2005 of the Danish Association of Financial Analysts. Please refer to definitions and concepts under accounting policies. Financial highlights for 2005/2006 have been calculated in relation to the Danish Financial Statements Act. Transition to IFRS has not resulted in changes in recognition and measurement. 2
Management s review Business concept The Company s purpose is, via investments in other companies, to own and operate letting business with properties in a Swedish property portfolio of a total of 76 properties as well as to raise the necessary financing for the Group s activities. Financial objective The ambition is to achieve annual return on operations of approx. 6.4% on the acquisition price of the properties. The Company furthermore has an objective of generating sufficient cash flows from operations to be able to repay the bond loans on expiry without taking out other financing. Group structure At 31 December 2008, the Group consists of the following companies (100% ownership): Landic Property Bonds VIII (Sverige II) A/S Landic Property Bonds VIII AB Landic Property VIII Eskilstuna AB Landic Property VIII PD AB Landic Property VIII Nordrköbing AB Landic Property VIII SK AB Landic Property VIII Haninge Landic Property VIII O AB Landic Property VIII Sollentuna AB Activities The Group includes nine companies, which own a total of 76 properties, primarily consisting of a commercial portfolio. The main part (80%) of the square metres are let out to public institutions while a large private enterprise occupies 15%. Landic Property Bonds VIII (Sverige II) A/S solely operates as Parent of Landic Property VIII AB. Landic Property VIII AB owns and operates as Parent of the underlying property companies of the Group. 3
Management s review Capital loss The Group has lost its consolidated equity. To avoid winding of the Swedish companies, a proposal for reconstruction of the Group Landic Property Bonds VIII (Sverige II) A/S will be issued on the Bond Owners meeting on 26 March 2009 held at HSH Nordbank. For further information, see announcement no. 31 to the Stock Exchange. Capital resources and liquidity Landic Property Bonds VIII (Sverige II) A/S has issued property bonds of a total of DKK 410 million. Landic Property Bonds VIII AB has taken out loan in RBS (Royal Bank of Scotland) of approx. DKK 1,389 million and has taken out loan through seller note of approx. DKK 75 million. In addition, the Company has a swingline of approx. DKK 64 million. Landic Property Bonds VIII (Sverige II) A/S has issued property bonds of a total of DKK 410 million. Landic Property Bonds VIII AB has taken out a loan in RBS (Royal Bank of Scotland) for which the balance today translated by use of the exchange rate of the balance sheet date represents approx. DKK 1,389 million excl. interest (originally SEK 2,200 million), as well as taken out loan through seller note at which the balance translated today at the exchange rate of the balance sheet date plus interest represents approx. DKK 75 million (originally SEK 95 million). Furthermore, the Company has an overdraft facility with limitation in the number of payments made and received for a specified period for which the balance today translated at the exchange rate of the balance sheet date represents approx. DKK 64 million excl. interest (originally nominally SEK 95 million). In connection with the significant decline in the market value of investment properties, the Group s lenders of mortgage debt have declared that conditions of financing have not been met as the loan-to-value ratio significantly exceeds the assumed. Management is working with lenders on solving the current challenges which has also resulted in the Senior lenders blocking the release of liquidity for the Group s payment of yield to the bond owners. See the section Events after the balance sheet date for the further process with the Senior lenders. Generally about the year The consolidated income statement shows a loss of DKK 157,5 million (2006/07: negative DKK 6.5 million), and the consolidated balance sheet shows equity at 31 December 2008 of negative DKK 146.6 million (2006/07: DKK 3.8 million). The loss for the period has materially shown as the result of negative value adjustments of investment properties, debt and derivatives of net negative DKK 180.2 million (2006/07: negative DKK 54.6 million) and exchange adjustment of negative DKK 68 million on intercompany accounts due to a weakening of SEK. Operating profit before value adjustments on investment properties, deb and derivatives, net and tax amounts to negative DKK 18.1 million which is lower than expected (2006/07: DKK 37.7 million), due to the exchange adjustment mentioned above. The financial period represents 12 months. Last year, the financial period represented 15 months. In the financial period, rental income has been received as planned from the properties, and the activities have been carried out as expected. The parent company, Landic Property Bonds VIII A/S, has in 2008 committed to inject capital of SEK 120 million to Landic Property Bonds VIII AB. Management considers the financial performance unsatisfactory. 4
Management s review Risk factors The Company's Management will currently monitor the risks facing the Group and attempt to ensure hedging of them in consideration of the Company's overall objective of return on operations. Below, a number of the risk factors, which the Company s Management assesses to have specific influence, and Management's actual assessment of the actual risk are outlined. External risk factors: Value adjustment of investment properties and debt: The pending crisis in the international financial sector and the fear of recession have resulted in increased prudence and significant reluctance within more or less all businesses in Sweden. The current cyclical slow-down has had a significant negative impact on the development in price of investment properties which has also affected the Group s financial performance for 2008. In connection with the notable drop in the market value of the investment properties, the Group s lenders of mortgage debt have declared that the conditions for financing have not been met as the loan-to-value ratio significantly exceeds the assumptions. Management is working with the lenders to solve the current challenges which have also resulted in the senior lenders blocking the release of liquidity for the Group s payment of yield on the bond debt. Management s judgement is that with respect to the current uncertain market conditions there may also in future be a risk of the Group being negatively affected by value adjustments. Rental income: Several factors may significantly influence rental income. Uncertain market conditions may affect the Company negatively if reletting is established at reduced market rent. The rental income level may furthermore be significantly influenced by indexation and current expectations of modest inflation in Sweden. Financing risk and capital resources The current financial crisis entails increased uncertainty in relation to the Company s financing risks. Management believes that it will be possible to perform the planned initiatives which are to ensure the Group s and the Parent s capital resources and liquidity. Interest rate level: The Group s mortgage debt is tied to a floating rate of interest. The Company has entered into agreement on interest hedge via financial instrument in the form of interest swap. By increasing interest levels, the interest risk is thereby minimised. Currently, the interest rate level in Sweden has dropped notably for which reason the market value of interest swap has been significantly reduced and therefore negatively affects the financial statements. Exchange rate: As the Group's income is in SEK, the current significant weakening of SEK in relation to DKK will result in lower income of which to pay yield on the bond debt taken out in DKK. The financial statements are negatively affected by this factor. 5
Management s review Internal risk factors: According to Swedish custom, all maintenance of the properties is incumbent upon the letter. Any unperformed current maintenance may impair the Group's investment properties as the rental level may drop in a possible reletting situation. In the long-term budget of the Group, funds have been provided for current maintenance, which the Supervisory Board estimates to be necessary for maintaining the budgeted rent level. Events after the balance sheet date The senior loan is in technical default as the value of the Company s property portfolio in relation to external assessment obtained from bank syndicate does not meet the loan-to-value provision of the senior loan agreement. Accordingly, the bond yields of DKK 32.8 million with maturity on 9 February 2009 were not paid. Based on the insufficient payment of interest and by request of the Company, a Bond Owners Meeting was held on 26 March 2009. The Bond Owners Meeting had been convened by HSH Nordbank as representative of the Bond Owners and CorpNordic Denmark A/S as Special Servicer. At the meeting, a restructuring proposal was made for the Landic Property Bond VIII (Sweden II) A/S Group. At the meeting, the Bond Owners decided not to terminate the bonds as well as not pursuing compulsory sale of the properties. At the Meeting, only 57% of the bond owners attended, and accordingly, no final decision could be made as to the restructuring process as several of the decisions require presence of representatives of at least 2/3 of the bond loan. A new Bond Owners Meeting is convened as soon as possible after this. For further information please refer to Notice to the Stock Exchange nos. 31, 32 and 33. As appears from the restructuring proposal, see Notice to the Stock Exchange no. 31 Basis for decision and proposal for reconstruction, the present seller financing is converted into share capital as well as being made possible that the bond owners achieve ownership of the Company. Landic Property A/S Group has made its ownership of the Company available to this restructuring. The Company s Management expects to achieve the necessary majority for performance of the proposal of reconstruction at a new Bond Owners Meeting in April 2009. On the basis of the above, the annual report has been prepared for the Company as a going concern. If the necessary acceptance for performance of the reconstruction proposal is not achieved, Management assesses that it will not be possible to continue the Company s activities without further capital contribution or financing. 6
Management s review Expectations of 2009 The Company s Management expects to obtain the necessary majority at a new Bond Owners Meeting. As appears from the restructuring proposal, the present seller financing is converted into share capital as well as being made possible that the Bond Owners achieve ownership of the Company. Landic Property Group has made ownership of the Company available to this restructuring. If acceptance of the restructuring is not obtained, Management believes that the capital losses in Sweden will necessitate liquidation of the Company. For the financial period 2009, the Group expects a profit before tax and value adjustments of investment properties, derivatives and debt, net of approx. DKK 37 million. The letting situation is positive despite the market situation as the majority of the portfolio is let out to public institutions and the average rental period for the portfolio is 3.6 years at 31 December 2008. 7
Shareholder information Share capital Landic Property Bonds VIII (Sverige II) A/S has a share capital of a total of DKK 40,000,000 allocated into 40,000,000 shares of nominally DKK 1. Dividends The full-year profit is to be transferred for the consolidation of the Company. Shareholder composition at 31 December 2008 (name and domicile): Number of shares % of equity Keops Properties A/S, Copenhagen 32,000,000 80.00% Keops Properties II A/S, Copenhagen 8,000,000 20.00% Total 40,000,000 100.00% Policy for treasury shares The Company's Articles of Association do not provide the possibility to acquire treasury shares. Shares and dividend ratios See financial highlights Announcements to the Stock Exchange in the period 1 January 2008 31 March 2009: No. Date Subject 34 33. 32. 31. 30. 29. 28. 27. 26. 25. 31. March 2009 31. March 2009 25. March 2009 23. March 2009 23. March 2009 25. February 2009 31. January 2009 23. January 2009 29. August 2008 13. May 2008 Annual report announcement. Delay. Executive summary from Bond Owners Meeting on 26 March 2009 Statement from Issuer Basis for decision and proposal for reconstruction Convening of Bond Owners Meeting on 26 March 2009 updated agenda Convening of Bond Owners Meeting on 26 March 2009 Financial Calendar for 2009 Statement regarding non-payment of bond interest Condensed consolidated interim report for the period 1 January 30 June Statement from Special Servicer concerning CorpNordic Denmark A/S 24. 30. April 2008 Minutes of General Meeting on 30 April 2008 23. 30. April 2008 Notice of General Meeting 22. 31. March 2008 Annual report for the period 1 October 2006 31 December 2007 21. 30. March 2008 Summary of Extraordinary General Meeting on 30 March 2008 20. 30. March 2008 Notice convening Extraordinary General Meeting on 30 March 2008 19. 31. January 2008 Financial calendar for 2008 Financial calendar for 2009: No. Date Subject 31 March 2009 Annual report announcement regarding the financial year 1 January 31 December 2008 30 April 2009 Ordinary General Meeting for the financial year 2008 31 August 2009 Annual report announcement for the period 1 January 30 June 2009 8
Shareholder information Information about bonds issued The Company has issued the following bonds listed on NASDAQ OMX Copenhagen: 8.0% Bond Loan, DKK 410,000,000, maturity 2006-2016, ISIN code DK0030021449 Accruing of yield is made once a year on 9 February, first time 9 February 2007. The loan amounts and the yield rates are fixed during the term to maturity. Contacts Further information is available from Landic Property Bonds VIII (Sverige II) A/S website www.landicproperty.com. Please address inquiries about investor relations and the share market to Head of Corporate Affairs Klaus T. W. Lund: Telephone +45 3378 4000 Fax +45 3378 4001 E-mail Ktl@landicproperty.com 9
Statement by Management on the annual report The Supervisory and Executive Boards have today presented the annual report for the Group and Landic Property Bonds VIII (Sverige II) A/S for the period 1 January to 31 December 2008. The annual report has today been considered and adopted. The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional reporting requirements for companies that have listed bonds. We consider the accounting polices appropriate and the accounting estimates reasonable, and we believe that the annual report contains the information relevant for evaluation of the Parent's and the Group's financial affairs. We therefore believe that the annual report provides a true and fair view of the Group's and the Parent s financial position and the results of their activities and cash flows for the financial year 2008. We recommend the annual report for adoption at the Annual General Meeting. Copenhagen, 2 April 2009 Executive Board Michael Sheikh Supervisory Board Gunnar (Charmin) Petersen Klaus T. W. Lund Michael Sheikh 10
The independent auditors report To the shareholders of Landic Property Bonds VIII (Sverige II) A/S We have audited the annual report of Landic Property Bonds VIII (Sverige II) A/S for the financial year 1 January to 31 December 2008, which comprises the statement by Management on the annual report, Management's review, income statement, Statement of recognised income and expenses, balance sheet, cash flow statement and the notes including accounting policies for the Group as well as the Parent. The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the EU, and additional Danish disclosure requirements for annual reports of companies with listed bonds. Management's responsibility for the annual report Management is responsible for the preparation and fair presentation of an annual report in accordance with International Financial Reporting Standards as adopted by the EU, and additional Danish disclosure requirements for annual reports of companies with listed bonds. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of an annual report that is free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditor's responsibility and basis of opinion Our responsibility is to express an opinion on this annual report based on our audit. We conducted our audit in accordance with Danish Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the annual report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of an annual report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the annual report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit has not resulted in any qualification. Opinion In our opinion, the annual report gives a true and fair view of the Group s and the Parent s financial position at 31 December 2008, and of their financial performance and the consolidated cash flows for the financial year 1 January to 31 December 2008 in accordance with International Financial Reporting Standards asadopted by the EU, and additional Danish disclosure requirements for annual reports of companies with listed bonds. Continues, 11
The independent auditors report Emphasis of matter relating to the annual report Without qualifying our opinion we refer to the Management s review in which Management addresses the uncertainties associated with valuation of the Group s investment properties and the Parent s bond debt as well as the uncertainty relating to the Company s capital resources and cash position. It appears from the Management s review that continued operations of the Company depend on whether the proposed reconstruction plan which is to ensure the Company's and the Group's capital resources and cash position will be accepted by the Company s senior lenders and bondholders. On presentation of the annual report, Management assumed that the Company s senior lenders and bondholders accept the proposed reconstruction plan and has therefore presented the annual report on a going concern basis. We have no reason to make another assessment of this. Copenhagen, 2 April 2009 Deloitte Statsautoriseret Revisionsaktieselskab Anders O. Gjelstrup State Authorised Public Accountant René H. Christensen State Authorised Public Accountant 12
Income statement 1 January - 31 December 2008 Group Parent Note 2008 2006/07 2008 2006/07 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 12 months 15 months 12 months 15 months Revenue 3 254,445 326,534 0 0 Operating expenses -95,825-120,363-715 0 Value adjustment of investment 4 properties, derivatives and debt, net -180,204-54,551 518 30,761 Realised gain on sale of investment properties 4,183 235 0 0 Gross profit/loss -17,402 151,855-197 30,761 Administrative expenses 5-2,838-3,341-333 -1,223 Operating profit/loss -20,239 148,514-531 29,538 Writedown of shares in subsidiaries 0 0-135,483 0 Financial income 6 17,210 1,712 49,531 42,630 Financial expenses 7-195,312-167,052-44,989-51,420 Profit/loss before tax -198,341-16,826-131,472 20,748 Tax on profit/loss for the year 8 40,851 10,283-15,032-65 Profit/loss for the year -157,491-6,543-146,504 20,683 Statement of recognised income and expenses: Exchange adjustment of foreign subsidiaries 7,094 496 0 0 Net income/expenses recognised directly on the equity 7,094 496 0 0 Profit/loss for the year -157,491-6,543-146,504 20,683 Total recognised income and expenses -150,397-6,047-146,504 20,683 13
Balance sheet at 31 December 2008 Assets Group Parent Note 2008 2007 2008 2007 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 Investment properties 9 1,738,764 2,179,841 0 0 Property, plant and equipment 1,738,764 2,179,841 0 0 Investments in subsidiaries 10 0 0 0 39,939 Receivables from group enterprises 11 0 0 357,484 409,500 Derivatives 12 0 60,836 0 0 Deferred tax assets 15 50,233 17,466 0 0 Financial fixed assets 50,233 78,302 357,484 449,439 Fixed assets 1,788,997 2,258,143 357,484 449,439 Current assets Receivables from tenants 2,122 202 0 0 Receivables from group enterprises 0 0 30,478 30,417 Other receivables 22,130 8,769 0 0 Prepayments 17 4,090 535 0 0 Receivables 28,342 9,506 30,478 30,417 Cash funds 13 98,881 101,896 6,882 688 Current assets 127,223 111,402 37,360 31,105 Assets 1,916,220 2,369,545 394,844 480,544 14
Balance sheet at 31 December 2008 Equity and liabilities Group Parent Note 2008 2007 2008 2007 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 Share capital 40,000 40,000 40,000 40,000 Retained earnings -186,601-36,204-138,180 8,324 Equity 14-146,601 3,796-98,180 48,324 Long-term liabilities other that provisions Mortgage debt 16 0 1,610,462 0 0 Bond debt 16 0 401,800 0 401,800 Seller note 16 61,520 83,045 0 0 Deferred tax 15 0 0 15,032 42 Derivatives 12 30,772 0 0 0 Long-term liabilities other than provisions 92,292 2,095,307 15,032 401,842 Short-term liabilities other than provisions Short-term portion of long-term liabilities other than provisions 16 1,746,991 44,274 357,484 1,121 Bank debt 64,638 76,209 0 0 Trade payables 17,742 10,630 0 0 Debt to group enterprises 578 0 91,229 0 Deferred income 63,228 70,052 0 0 Other payables 77,352 69,277 29,279 29,257 Short-term liabilities other than provisions 1,970,529 270,442 477,992 30,378 Liabilities other than provisions 2,062,821 2,365,749 493,024 432,220 Equity and liabilities 1,916,220 2,369,545 394,844 480,544 15
Cash flow statement 1 January - 31 December 2008 Group Parent Note 2008 2006/07 2008 2006/07 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 12 months 15 months 12 months 15 months Loss before tax for the year -198,341-16,826-131,472 20,748 Adjustments to cash flow and net interest 20 372,679 219,656 154,017-11,710 Change in working capital 21-13,576 51,702 31 30,157 Cash flows before financial income and expenses 160,762 254,532 22,576 39,195 Financial income, received 1,629 1,712 34,155 42,629 Financial expenses, paid -124,121-145,186-44,999-51,420 Corporation tax paid (joint taxation) -43 0-43 0 Cash flows from operating activities 38,226 111,058 11,689 30,404 Investment in properties -22,912-14,486 0 0 Investment in subsidiaries -95,544 0 Sale of properties 29,275 4,314 0 0 Cash flows from investing activities 6,363-10,172-95,544 0 Repayments of borrowings -34,229-41,888 0 0 Change in balance with group enterprises 578 0 90,047-30,351 Cash flows from financing activities -33,652-41,888 90,047-30,351 Cash flows for the year 10,937 58,998 6,192 53 Cash and cash equivalents at the beginning of the year 101,896 41,461 688 635 Effect of exchange rate fluctuations -13,952 1,437 0 0 Cash and cash equivalents at the end of the period 98,881 101,896 6,880 688 16
Notes List of notes Page 1. Accounting policies 18 2. Significant judgements and accounting estimates 25 3. Revenue 26 4. Value adjustment of investment property and debt, net 26 5. Administrative expenses 26 6. Financial income 26 7. Financial expenses 27 8. Tax on profit/loss for the year 27 9. Investment properties 27 10. Investment in subsidiary 29 11. Receivables from subsidiary 29 12. Derivatives 30 13. Cash 30 14. Equity 30 15. Deferred tax 31 16. Long-term liabilities other than provisions 32 17. Prepayment 32 18. Other payables 32 19. Other liabilities 32 20. Adjustment to cash flow 33 21. Change in working capital 33 22. Financial risk management 33 23. Related parties 40 24. Supervisory and Executive Boards 40 17
Notes 1. Accounting policies The annual report for 2008 of Landic Property Bonds VIII (Sverige II) A/S which comprises financial statements of the Parent as well consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements on the financial reporting for annual reports of reporting class D with listed bonds and the executive order on the adoption of IFRS issued in accordance with the Danish Financial Statements Act. Landic Property Bonds VIII (Sverige II) A/S is a public limited company registered in Denmark. The annual report also complies with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). This annual report is the first report presented applying IFRS. IFRS has been selected applied for financial statements of the Parent as well as for the consolidated financial statements. For the transition, the transitional provisions of IFRS 1, First-time Adoption of International Financial Reporting Standards have been applied. According to this Standard, the opening balance sheet at 1 January 2007 and the comparatives for 2007 have been prepared in accordance with the Standards and Interpretations applicable at 31 December 2008 and adopted by the EU at the time of presentation of the financial statements. The opening balance sheet at 1 January 2008 has been prepared as if these standards and interpretations had always been applied apart from the special transitional and commencement provisions of IFRS 1 described in the following. The annual report is presented in DKK thousands, which is the reporting currency for the Groups activities and the functional currency for parent Company. The annual report is prepared on the basis of historical cost, apart from investment properties and derivative financial instruments that are measured at fair value. Accounting policy, apart from the below changes, the accounting policies are unchanged compared to last year. Transition to presentation of the consolidated financial statements in accordance with IFRS has not resulted in any change in accounting policies in terms of recognition and measurement. Comparative figures The restated comparatives are in accordance with the requirements of IFRS, including the transitional provisions of IFRS 1. Standards and interpretations not yet effective At the time of publishing this annual report, the following new or changed standards and interpretations have not yet taken effect and have accordingly not been incorporated in the annual report. 18
Notes 1. Accounting policies (continued) The Group has planned implementation of these standards as they become mandatory. The potential effect of the implementation of the above standards on the annual report has not yet been estimated, but will primarily be influenced by the volume of supplementary disclosures. The accounting policies are overall as follows: Consolidated financial statements The consolidated financial statements comprise the Parent, Landic Property Bonds VIII (Sverige II) A/S, and subsidiaries in which Landic Property Bonds VIII (Sverige II) A/S directly or indirectly possesses more than 50% of the votes, or otherwise has controlling influence. Basis of consolidation The consolidated financial statements are prepared based on the financial statements of Landic Property Bonds VIII (Sverige II) A/S and its subsidiaries. The consolidated financial statements are prepared by combining items of a uniform nature. The financial statements used for consolidation have been prepared applying the Group s accounting policies. On consolidation, intra-group income and expenses, intra-group accounts and dividends as well as profits and losses on transactions between the consolidated enterprises are eliminated. Foreign currency translation On recognition of foreign subsidiaries and associates that are independent entities, the income statement items are translated using average rates, and balance sheet items are translated using the rates of exchange as at the balance sheet date. Exchange differences arising out of the translation of foreign subsidiaries equity at the beginning of the year at the balance sheet date exchange rates as well as out of the translation of income statements from average rates to the exchange rates at the balance sheet date are recognised directly in equity. On initial recognition, transactions in currencies different from each enterprise s functional currency are translated applying exchange rate at the the transaction date. Receivables, payables and other monetary items denominated in foreign currencies that have not been settled at the balance sheet date are translated using the exchange rate at the balance sheet date. Exchange differences that arise between the rate at the transaction date and the payment date or the rate at the balance sheet date are recognised in the income statement as financial income or financial expenses. Property, plant and equipment, intangible assets, inventories and other non-monetary assets purchased in foreign currencies and measured on the basis of historical cost are translated applying the exchange rate at the transaction date. Non-monetary items that are restated at fair value are translated using the exchange rate at the date of restatement. Derivatives On initial recognition, derivative financial instruments are measured at fair value on the settlement date. Directly attributable costs related to the acquisition or the issue of the individual financial instrument (transaction costs) are measured at fair value on initial recognition unless the financial asset or liability is measured at fair value with recognition of fair value adjustments in the income statement. After initial recognition, derivative financial instruments are measured at fair value at the balance sheet date. Positive and negative fair values of derivative financial instruments are recognised in other receivables or other payables, respectively. 19
Notes 1. Accounting policies (continued) Changes in fair value of derivative financial instruments classified as and complying with the requirements for hedging of the fair value of a recognised asset or a recognised liability are recorded in the income statement under value adjustment of investment properties and debt, net. Income statement Revenue Rental income from development and investment properties is accrued and recognised as income according to contracts concluded. Operating expenses Operating expenses comprise costs and expenses incurred to earn revenue for the year, including costs and expenses in connection with operation of the properties. Value adjustments, investment properties, derivatives and debt, net Changes in the fair value of investment properties and related debt and derivative financial instruments are recognised in the income statement in the financial statement item Value adjustments, investment properties and debt, net. Administrative expenses Administrative expenses include costs and expenses incurred during the year for management and administration of the Company. Financial income and expenses Financial income and expenses comprise interest income and expenses, transaction costs incurred on borrowing as well as amortisation of financial assets and liabilities, realised and unrealised exchange gains and losses on liabilities other than provisions, apart from fair value adjustment of debt and derivative financial instruments relating to the investment properties. Dividends from equity investments are recognised when final right to such dividends has been acquired. This typically means at the time of the General Meeting s adoption of the distribution from the relevant Company. Tax on profit or loss for the year The Company is subject to the Danish rules on mandatory joint taxation of Landic Property hf Group s Danish subsidiaries. Subsidiaries are included in the joint taxation from the time when they are included in the consolidation in the consolidated financial statements and until the time when they are taken out of the consolidation. Landic Property A/S is Management Company for the joint taxation and consequently recognises all payments of corporation tax with the tax authorities. The current Danish income tax is allocated by settlement of joint tax contribution among the jointly taxed companies proportionally to their taxable income. In this relation, enterprises with tax losses receive a refund for the tax loss utilised in the joint taxation. Tax for the year, which consists of current tax for the year and changes in deferred tax, also as a result of change in tax rate, is recognised in the income statement by the portion attributable to the profit/loss for the year and classified directly as equity by the portion attributable to entries directly in equity. 20
Notes 1. Accounting policies (continued) Current tax and deferred tax According to the rules on joint taxation, Landic Property A/S as Management Company acquires the liability for the subsidiaries corporation taxes to the tax authorities as the subsidiaries make their payment of joint taxation contribution. Payable and receivable joint tax contributions are recognised in the balance sheet under receivables from or payables to group enterprises. Deferred tax is measured applying the liability method on all temporary differences between the carrying amount and tax-based value of assets and liabilities. However, deferred tax on temporary differences regarding non-amortisable goodwill and other items for which temporary differences - apart from enterprise acquisitions - have occurred at the time of acquisition without affecting the results or taxable income is not recognised. Where statement of the tax-based value can be made according to alternative tax rules, deferred tax is measured on the basis of the by Management planned use of the asset or settlement of the liability. Deferred tax on temporary differences related to investments in subsidiaries is recognised unless the Parent is able to control when the deferred tax is realised. It is probable that the deferred tax will not be triggered as current tax in a foreseeable future. Deferred tax assets, including the tax base of tax loss carry-forward, are recognised by the value at which they are expected to be utilised, either by setting off tax on future earnings or by a set-off against deferred tax liabilities within the same legal tax entity and jurisdiction. Adjustment of deferred tax is made relating to eliminations of unrealised intra-group profits and losses. Deferred tax is measured based on the tax regulations and tax rates of the relevant countries that will be in effect according to law at the balance sheet date when the deferred tax is estimated to be triggered as current tax. Balance sheet Investment properties Investment properties are properties owned to earn rental income and/or capital gains. On initial recognition, investment properties are measured at cost which comprises the properties' acquisition price and any directly related costs. Investment properties are subsequently measured by property portfolio at fair value. Measurement is made by application of a discounted cash flow model, by which future cash flows from the ownership of the investment properties are discounted. The return requirement (discount factor) is determined for each property or for portfolios of properties with identical characteristics, if possible. The determination of the return requirement is made based on assessments from independent broker and valuation firms in the countries in which the properties are located. External assessment is made once a year in connection with the closing of the financial year. Costs, adding new or improved qualities to an investment property compared with the date of acquisition, and which thereby improve the future yield of the property, are added to cost as an improvement. Costs which do not add new or improved qualities to an investment property are expensed in the income statement under cost of sales. 21
Notes 1. Accounting policies (continued) Properties under construction, additional constructions and refurbishment projects for the purpose of future use as investment properties are measured at cost. Value adjustments are recognised in the income statement under the item Value adjustments, investment properties and debt, net. Positive value adjustments of investment properties less deferred tax are recognised in Reserve for fair value adjustment under equity. Properties which are expected sold are reclassified to Investment properties for sale. Investments in subsidiaries in the financial statements of the Parent Investments in subsidiaries are measured at cost in the financial statements of the Parent. If cost exceeds the recoverable amount of the investments, they are written down to such lower amount. Cost is also reduced if higher dividends are distributed than have been earned in total in the enterprise since the Parent s acquisition of the equity investments. Investments in subsidiaries are recognised and measured at cost or recoverable amount if this is lower than carrying amount. Receivables On initial recognition, receivables are measured at fair value and subsequently at amortised cost usually equalling nominal value less provisions for bad debts. Write-down is made individually by use of a provision account. Receivables from group enterprises are measured at cost. Cash Cash comprises cash funds as well as bank deposits. Dividends Proposed dividends are recognised as a liability at the time of adoption at the Annual General Meeting (time of declaration). Dividends expected distributed for the year are disclosed as a separate equity item. Financial liabilities Debt to mortgage credit institutions and other credit institutions concerning development properties are recognised on taking out the loan at the proceeds received less transaction costs incurred. In subsequent periods, these financial liabilities are measured at amortised cost. Debt to mortgage credit institutions, bond debt and other credit institutions relating to investment properties are recognised at the time of borrowing at fair value. Subsequently, these debt items are measured at fair value. The change in fair value is recognised in the income statement under the item Value adjustment of investment properties and debt, net. Adjustment of mortgage debt which is a write-down is tied under equity to Reserve for fair value adjustment. 22
Notes 1. Accounting policies (continued) Other financial liabilities Other financial liabilities comprise bank debt, trade payables and other payables to public authorities, etc. Other financial liabilities are subsequently recognised to fair value deduct any transaction cost. Subsequently, these debt items are measured amortised cost apply to the effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. Deferred income Deferred income comprises received income relating to subsequent financial years. Deferred income is measured at cost. Cash flow statement The cash flow statement is presented using the indirect method and shows cash flows from operating, investing and financing activities as well as the Company s cash and cash equivalents at the beginning and the end of the financial year. Cash flows from operating activities are calculated as the operating profit or loss adjusted for non-cash operating items, working capital changes as well as paid financial income, financial expenses and corporation taxes. Cash flows from investing activities comprise payments in connection with the acquisition, development, improvement and sale, etc. of intangible assets and property, plant and equipment. Cash flows from financing activities comprise changes in the Parent s share capital and related costs as well as inception and repayment of loans and instalments on interest-bearing debt. Cash and cash equivalents comprise cash funds and short-term securities with insignificant price risk less any overdraft facilities included as an integral part of the cash flow management. Segment information The operating segment of the Group is lease of commercial tenancies and the Group s geographical segment is Sweden. The Group s income statement and balance sheet to a significant extent reflect both segments, and accordingly, no further segment information is provided apart from as appears from the income statement and balance sheet. 23
Notes 1. Accounting policies (continued) Ratios Ratios have been prepared in accordance with Recommendations and Ratios 2005" of the Danish Association of Financial Analysts. The ratios stated in the list of financial highlights are calculated as follows: Return on equity (after tax) Profit or loss after tax x 100 Average equity Solvency Equity at year-end x 100 Total equity and liabilities at year-end Equity value at year-end Total equity at year-end Share capital at year-end Dividends Dividend ratio of the Parent 24
Notes 2. Significant judgements and accounting estimates The preparation of annual reports requires Management to make accounting judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing this consolidated annual report, the significant judgements made by Management in applying the Group's accounting policies and the significant related uncertainties in terms of estimates were the same as those applied for the preparation of the consolidated annual report at 31 December 2008. Valuation of properties In accordance with the Group's accounting policies, that remain unchanged from the publication of the consolidated financial statements of 2007, the Group measures its investment properties at fair value using a discounted cash flow model based on future cash flows from the ownership of the investment properties. The valuation of the properties as at 31 December 2008 has been carried out internally. The valuation of significant investment property portfolios has been done by looking at changes in cash flows, market yields and other relevant information that affects the valuation of investment properties. Furthermore, the valuation has been compared to external assessment. The return requirement (the discount factors) is determined for each property or portfolios of properties with similar characteristics if possible. The determination of the return requirement is made on the basis of assessments from independent broker and valuation firms in the countries in which the properties are located. External assessment is made once a year in connection with the closing of accounts, Based on the above, Management has estimated the effect on the fair value of the investment properties. Valuation of bonds In order to apply the official rate on the market for property bonds, the prices are to represent actual market transactions which regularly take place between qualified, willing, mutually independent parties. As a result of the present financial crisis with very few market transactions, it has been assessed that the prices on the market for property bonds no longer reflect the fair value of the bonds and thereby of the bond debt. Consequently, the bond debt has been measured on the basis of the security of the bonds in the property portfolios via the existing mortgaging. The bond debt is thereby measured at the fair value of the properties less senior mortgages, however, generally at a maximum rate of 100. 25
Noter Group Parent 2008 2006/2007 2008 2006/2007 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 12 months 15 months 12 months 15 months 3 Revenue Rental income, investment properties 234,335 303,120 0 0 Discounts -371-366 0 0 Other income 20,481 23,780 0 0 254,445 326,534 0 0 4 Value adjustment of investment properties and debt, net Value adjustments of investment properties -155,279-120,509 0 0 Value adjustments of bonds 52,534 30,761 52,534 30,761 Value adjustments of debt 15,477-13 0 0 Value adjustments of receivables 0 0-52,016 0 Value adjustments of derivatives -92,936 35,210 0 0 Total value adjustments of bonds and derivatives -24,925 65,958 518 30,761-180,204-54,551 518 30,761 5 Administrative expenses Fees to auditors appointed at the General Meeting: Deloitte, statutory audit 577 788 100 161 Deloitte, other services 0 134 0 0 577 922 100 161 The Parent had no employees in the past financial period. No remuneration has been paid in the financial year to the Supervisory or Executive Boards. 6 Financial income Interest income, bank 1,629 1,578 48 13 Interest income, group enterprises 0 0 34,107 42,616 Other financial items 0 132 0 0 Price and exchange adjustments, unrealised 15,581 2 15,376 1 17,210 1,712 49,531 42,630 26
Noter Group Parent 2008 2006/2007 2008 2006/2007 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 12 months 15 months 12 months 15 months 7 Financial expenses Interest expenses, mortgage credit* 81,488 102,491 0 0 Interest expenses, bonds* 32,790 41,447 32,790 41,067 Interest expenses, group enterprises 4,562 5,252 3,980 86 Amortisation cost bonds, etc.* 8,384 10,126 8,219 10,266 Price and exchange adjustments, realised and unrealised 68,088 7,736 0 1 195,312 167,052 44,989 51,420 *) Interest expenses relate to financial liabilities measured at fair value with recognition of the fair value adjustment in the income statement. 8 Tax on profit/loss for the year Deferred tax on profit/loss for the period -41,420-10,283 15,032 65 Adjustment to previous periods 569 0 0 0-40,851-10,283 15,032 65 Tax on profit/loss for the period is explicable as follows: Calculated 25% tax on profit/loss for the year -49,585-4,711-32,868 5,187 Adjustment to calculated tax in foreign group enterprises -6,052 0 0 0 Tax-based value of permanent differences 14,184-5,125 47,900-5,125 Other adjustments 602-447 0 3-40,851-10,283 15,032 65 Effective tax rate -21% 61% 11% 0% 9 Investment properties Cost at 1 January 2,347,376 2,374,619 0 0 Exchange adjustment -323,601-37,650 0 0 Additions 22,912 14,486 0 0 Disposals -18,084-4,079 0 0 Cost at 31 December 2,028,603 2,347,376 0 0 27
Noter Group Parent 2008 2007 2008 2007 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 9 Investment properties (contiuned) Revaluation at 1 January -167,535-47,026 0 0 Exchange adjustment 23,086 0 0 0 Revaluation for the year -138,382-120,509 0 0 Disposal -7,008 0 0 0 Revaluation at 31 December -289,839-167,535 0 0 Carrying amount at 31 December 1,738,764 2,179,841 0 0 Rate of return Year of acquistion sqm Carrying amount at 31/12 2008 76 properties, Sweden 2008 6.4% 2006 345,734 1,738,764 83 properties, Sweden 2007/06 7.0% 2006 357,356 2,179,841 The carrying amount for the year of investment properties at 31 December 2008 has been calculated on the basis of a return requirement of 7.5% (2007: 7.0%). The calculation has been made on the basis of a discounted cash flow model. The rate of return represents 6.8% and has been calculated based on the gross profit/loss excl. value adjustments of investment properties and debt, net in relation to the acquisition price of investment properties excl. exchange adjustments. As security for the Group s mortgage and bond commitments, mortgage has been provided in the investment properties, the carrying amounts of which at 31 December 2008 represent DKK 1,739 million. The property portfolio consists of a total of 76 properties of which the main part are commercial properties. There is no public assessment of properties in Sweden. 28
Noter Parent 2008 2007 DKK 1,000 DKK 1,000 10 Investments in subsidiary Cost at 1 January 39,939 39,939 Additions 95,544 0 Writedown -135,483 Cost at 31 December 0 39,939 Domicile Shares Profit/loss after tax Equity Landic Property VIII AB Sverige 100% -79,045-7,841 11 Receivables from subsidaries Parent 2008 2007 DKK 1,000 DKK 1,000 Cost at 1 January 409,500 409,500 Additions 0 Cost at 31 December 409,500 409,500 Revaluation at 1 January 0 0 Revaluation for the year -52,016 0 Revaluation at 31 December -52,016 0 Carrying amount at 31 December 357,484 409,500 Fixed/ floating Effective interest 2008 2007 DKK 1,000 DKK 1,000 Receivables from subsidiaries Matures between 1-5 years Fixed 0.0% 0 0 Matures after 5 years Fixed 8.3% 357,484 409,500 357,484 409,500 Receivables from group enterprises with a carrying amount of DKK 357,484 thousand have been mortgaged in favour of the bond owners. 29
Noter Group Parent 2008 2007 2008 2007 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 12 Derivatives Cost at 1 January 12,858 12,858 0 0 Exchange adjustment -1,773 0 0 0 Cost at 31 December 11,085 12,858 0 0 Revaluation at 1 January 47,978 14,222 0 0 Exchange adjustment -6,615-1,454 0 0 Revaluation for the year -83,220 35,210 0 0 Revaluation at 31 December -41,857 47,978 0 0 Carrying amount at 31 December -30,772 60,836 0 0 See note 21 for further information. 13 Cash Cash funds of DKK 98,881k (2006/07 DKK 101,896k) have been provided as security for the Group's mortgage debt which at 31 December 2008 amounts to DKK 1,389,507k. (2007/06 DKK 1,654,736k) 14 Equity The Parent s share capital amounts to DKK 40,000,000 allocated into shares of DKK 1. Equity has developed as follows: Group: Share Retained capital earnings Total DKK 1,000 DKK 1,000 DKK 1,000 Equity at 1 October 2006 40,000-30,157 9,843 Exchange adjustment 496 496 Profit/loss for 2006/07-6,543-6,543 Equity at 1 January 2008 40,000-36,204 3,796 Exchange adjustment 7,094 7,094 Profit/loss for 2008-157,491-157,491 Equity at 31 December 2008 40,000-186,601-146,601 Accumulated exchange adjustments DKK 7.590k 30
Noter 14 Equity (contiuned) Parent: Share Retained capital earnings Total DKK 1,000 DKK 1,000 DKK 1,000 Equity at 1 October 2006 40,000-12,359 27,641 Profit/loss for 2006/07 20,683 20,683 Equity at 1 January 2008 40,000 8,324 48,324 Profit/loss for 2008-146,504-146,504 Equity at 31 December 2008 40,000-138,180-98,180 15 Deferred tax Group Parent 2008 2007 2008 2007 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 Deferred tax at 1 January 17,467 7,644-42 0 Exchange adjustment -2,370-517 0 0 Deferred tax for the year 35,648 10,339-14,990-42 Adjustment to previous years -512 0 0 0 Deferred tax at 31 December 50,233 17,466-15,032-42 Deferred tax at year-end is included in the financial statement items: Financial assets 50,233 17,466 0 0 Long-term liabilities other than provisions 0 0 15,032 42 50,233 17,466-15,032 42 Deferred tax relates to: Investment properties -124,672-159,451 0 0 Derivatives 20,004-10,250-12,104 0 Tax loss carry forward 154,901 187,167-2,928 42 50,233 17,466-15,032 42 Deferred tax assets have been recognised in the balance sheet as it is expected realised in future profits. 31
Noter 16 Long-term liabilities other than provision The Company's long-term liabilities other than provisions mature as follows: Group Parent 2008 2007 2008 2007 DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 Payment / maturity Effective interest rate Mortgage debt, SEK 1-5 years 4.5% 0 1,610,462 0 0 Seller note, SEK 1-5 years 5.4% 61,520 83,045 0 0 Bonds, DKK > 5 years 8.0% 0 401,800 0 401,800 61,520 2,095,307 0 401,800 Mortgage debt carries floating rate of interest while the bond debt carries fixed rate of interest. As security for the Group's mortgage and bond debt, mortgage has been provided in Investment properties, th carrying amount of which at 31 December 2008 amounts to DKK 1,739 million. The Group has entered into an agreement of interest swap which fixes the interest rate for a total debt of SEK 2,045 million until repayment of the debt. In 2008, mortgage debt as well as bond debt has been recognised under short-term portion of longterm liabilities other than provisions as a result of breach of the loan-to-value as well as default on insufficient payment of bond yield maturing on 9 February 2009. 17 Prepayments Prepayments and consist of prepaid rent. 18 Other payables VAT and other taxes 10,140 12,804 0 0 Accrued interest 47,262 47,239 29,205 29,205 Other payables 19,950 9,234 74 52 77,352 69,277 29,279 29,257 19 Other liabilities The group has no security, guarantee or other commitments, apart from what is customary for a property company and otherwise appears from financial statements and notes. 32
Noter Group Parent 2008 2007 2008 2007 20 Adjustment to cash flow and net interest DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 Value adjustment investment properties 155,279 120,509 0 0 Value adjustment bonds -52,534-30,761-52,534-30,761 Value adjustment other debt -15,477 13 0 0 Value adjustment receivables 0 0 52,016 Value adjustment derivatives 92,936-35,210 0 0 Profit/loss from sale of properties -4,182-235 0 0 Financial income -17,210-1,712-49,531-42,630 Financial expenses 195,312 167,052 44,989 51,420 Value adjustment of shares in subsidary 0 0 135,483 Price and exchange adjustment 18,555 0 23,594 10,261 372,679 219,656 154,017-11,710 21 Change in working capital Change in receivables -15,282 5,634 0 21,962 Change in prepayments -3,555 512 0 0 Change in debts 12,084-6,360 31 8,195 Change in deferred income -6,824 51,916 0 0-13,576 51,702 31 30,157 22 Financial risk management The Group activities are subject to different financial and markets risk, hereby price and interest risk. Details about the Parent s financial risks have been limited to bond debt and receivable subsidiaries. The net risk is insignificant. Risk management is carried out by a centralised treasury department, which oversees and manages financial risks and provides debt funding for the operation and new acquisitions. Treasury identifies and evaluates the financial risks in close co-operation with the Group's operational units. The risks are managed within guidelines set by the Supervisory Board. The Group uses derivatives to hedge financial risks. 33
Noter 22 Financial risk management (contiuned) (a) Market risk (i) Foreign exchange risk The Group is exposed to foreign exchange fluctuations, as a result of each group company making purchase and sale transactions and having receivables and debts in foreign currencies other than their own functional currency. The main part of the foreign exchange risk relates to derivatives arising from financing of bonds on NASDAQ OMX Copenhagen in DKK. Exposures in DKK are not hedged. The Group's foreign companies have been influenced considerably by the fluctuations in exchange rate in SEK, as the debt to the Parent company is in DKK. The Group has following foreign exchange exposures: 31 December 2008 SEK DKK Total DKK 1,000 DKK 1,000 DKK 1,000 Property, plant and equipment 1,738,764 0 1,738,764 Financial assets 50,233 0 50,233 Receivables 28,342 0 28,342 Cash 91,999 6,882 98,881 Total assets 1,909,337 6,882 1,916,220 Seller note 61,520 0 61,520 Other long-term liabilities other than provisions 30,772 0 30,772 Short-term liabilities other than provisions 1,583,766 386,763 1,970,529 Total liabilities 1,676,058 386,763 2,062,821 Net assets 233,280-379,881-146,601 31 December 2007 Property, plant and equipment 2,179,841 0 2,179,841 Financial assets 78,302 0 78,302 Receivables 9,506 0 9,506 Cash 101,208 688 101,896 Total assets 2,368,857 688 2,369,545 34
Noter 22 Financial risk management (contiuned) SEK DKK Total DKK 1,000 DKK 1,000 DKK 1,000 Mortgage debt 1,610,462 0 1,610,462 Bond debt 0 401,800 401,800 Seller notes 83,045 0 83,045 Short-term liabilities other than provisions 240,064 30,378 270,442 Total liabilities 1,933,571 432,178 2,365,749 Net assets 435,286-431,490 3,796 The Group manages foreign currency risk on an overall basis. The sensitivity analysis prepared by Management of foreign currency risk illustrates how changes in the fair value or future cash flows of a financial instrument will affect marked value and future cash flows. The table above presents financial assets, equity and liabilities denominated in foreign currencies held by the Group in 2007 and 2008 applied for handling the exchange risk at the balance sheet dates. If SEK is weakened/strengthened by 10 % against DKK with all other variables kept constant, profit/loss and equity for the year may be influenced by positiv/negative DKK 17 million (2007:DKK 31 million). (ii) Price risk The Group is exposed to property price and property rentals risk. (iii) Interest risk As a result of its investment and financing activities, the Group has a risk exposure related to the changes in the interest rate in Denmark as well as foreign countries. It is the Group s policy to hedge the interest risk on the Group's debts, when it is assesed that the interest payments can be hedged at a satisfactory level. The hedges are prepared with conclusion of interest rate swap, when the floating rate, debts are replaced by fixed rate debts. As the Group has no significant interest-bearing assets, its income and operating cash flows are substantially independent of changes in market interest rates. The Group's main exposure to new changes in interest rates related to the process of borrowing in connection with financing of property investments or on refinancing of existing debt. 35
Noter 22 Financial risk management (contiuned) In order to hedge the valuation impact, the aim is to raise longer-term loans of at least 5 years maturity. Traditional risk measures are applied in the management of the debt s interest rate risk. The interest rate risk on the debt is monitored regularly in order to secure that it is kept in accordance with issued guidelines from the Supervisory Board. The following table details the Group's exposure to interest rate risks. It includes the Group's liabilities at fair values. 31 December 2008 SEK DKK Total DKK 1,000 DKK 1,000 DKK 1,000 Fixed rate Interest swap 1,389,507 0 1,389,507 Bond debt 0 357,484 357,484 Seller note 61,520 0 61,520 Non-derivative financial instruments 1,451,027 357,484 1,808,511 Floating rate Mortgage debt 1,389,507 0 1,389,507 Interest swap -1,389,507 0-1,389,507 Bank debt 64,638 0 64,638 Non-derivative financial instruments 64,638 0 64,638 Fixed 1,451,027 357,484 1,808,511 Floating 64,638 0 64,638 Total non-derivative financial instruments 1,515,665 357,484 1,873,149 31 December 2007 SEK DKK Total DKK 1,000 DKK 1,000 DKK 1,000 Fixed rate Interest swap 1,654,736 0 1,654,736 Bond debt 0 401,800 401,800 Seller note 83,045 0 83,045 Non-derivative financial instruments 1,737,781 401,800 2,139,581 36
Noter 22 Financial risk management (contiuned) Floating rate Mortgage debt 1,654,736 0 1,654,736 Interest swap -1,654,736 0-1,654,736 Bank debt 76,209 0 76,209 Non-derivative financial instruments 76,209 0 76,209 Fixed 1,737,781 401,800 2,139,581 Floating 76,209 0 76,209 Total non-derivative financial instruments 1,813,990 401,800 2,215,790 b Credit risks The Group has no significant concentrations of credit risk. Credit risk arises from cash and cash equivalents as well as credit exposures with respect to rental customers, including outstanding receivables. The Group s credit risk is mainly due to deposits in banks and the positive market value of derivative instruments. The Group primarily conducts business with reputable banks of a certain rating, and therefore, the counterparty exposure is perceived as limited. The Group monitors the financial condition of and exposure to its counterparties periodically in order to reduce the credit risk exposure. Covenant risk A number of financial contracts contain financial covenants, which are customary in nature. The financial loan covenants relate to e.g. equity ratio, interest coverage, debt service coverage ratio, loan-to-value, sale or other dispersion of assets, change of ownership and/or control of the Company, etc. Non-compliance of the covenants could mean accelerated repayment of loans, and/or technical default requiring prohibition of dividend and re-negotiation with creditors under distress. Presently, the significant decline in market assessment of investment properties has led to conditions for loan-to-value rate of mortgage debt not being met see the Management s review of the financial statements 37
Noter 22 Financial risk management (contiuned) c Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, bonds and montage debt. The Group guideline is to raise longer-term loans to reduce this risk. Going forward, the aim is to create a smooth maturity profile in order to minimise the exposure to refinancing conditions at any given point in time. Furthermore, in order to reduce refinancing risk, the Group's funding is mainly based on bank loans with reputable banks. Secondly, the Group has issued bonds on OMX Nordic Exchange Iceland and OMX Nordic Exchange Copenhagen. The table below summarises the maturity profile of the Group's financial liabilities at 31 December 2008 based on contractual undiscounted payments. As at 31 December 2008 After 5 < 1 year 1-5 years years Total DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 Mortgage debt 1,389,507 1,389,507 Bond debt included amortisations surcharge 381,195 381,195 Bank debt 64,638 64,638 Seller note 61,520 61,520 Derivatives 30,772 30,772 Short term liabilities other than provisions 158,899 158,899 1,994,240 61,520 30,772 2,086,532 38
Noter 22 Financial risk management (contiuned) After 5 As at 31 December 2007 < 1 year 1-5 years years Total DKK 1,000 DKK 1,000 DKK 1,000 DKK 1,000 Mortgage debt 44,274 1,610,462 1,654,736 Bond debt included amortisations surcharge 417,293 417,293 Bank debt 76,209 76,209 Seller note 83,045 83,045 Short term liabilities other than provisions 149,959 149,959 270,442 1,693,507 417,293 2,381,242 d Financial gearing The Group s Management currently evaluates the Group's capital structure. As a part of this review, the Group's Management evaluates the group's capital expenses and the risk related to each type of capital. The gearing ratios at 31 December were as follows: 2008 2007 DKK 1,000 DKK 1,000 Total borrowings 1,811,628 2,139,581 Cash and cash equivalents 98,881 101,896 Net debt 1,712,747 2,037,685 Total equity -146,601 3,796 Total capital 1,566,146 2,041,481 Gearing ratio 109% 100% 39
Noter 23 Related parties The Group's related parties consist of the Company's shareholders, Landic property hf and its subsidiaries. During the year, the Group has had transactions with Landic Property A/S and Landic Sweden AB. All fees and outstanding accounts in the financial year have been settled on market terms and have represented: 2008 2006/07 DKK 1,000 DKK 1,000 12 months 15 months Landic Property A/S, management fees (Group and Parent) 715 809 Landic Sweden AB 6,983 1,614 Intra-group balances as well as interest thereon appear from balance sheet and notes 6 and 7. 24 Supervisory and Executive Boards Landic Property Bonds VIIII (Sverige II) A/S' Supervisory and Executive Boards hold the following managerial positions in other Danish public limited companies. Michael Sheikh: Director in a number of companies in Landic property hf group and in Michael Sheikh ApS Supervisory Board member in PKD-Holding A/S, SMB Holding ApS and a number of companies in Landic Property hf Group. Klaus T. W. Lund: Supervisory Board member of a number of companies in Landic Property hf Group. Gunnar Petersen: Director and Supervisory Board member of a number of companies in Landic Property hf Group. 40