Interim report January – September 2010

Finnlines Plc Stock Exchange Release 2 November 2010

INTERIM REPORT JANUARY – SEPTEMBER 2010 (Unaudited)

SUMMARY

July – September 2010 Q3
- Revenue EUR 147.5 million (EUR 130.5 million prev. year), increase 13.0%
- Result before interest, taxes, depreciation and amortisation (EBITDA) EUR 24.6 million (EUR 13.3 million), increase 85.6%
- Earnings per share were 0.04 (-0.12) EUR/share

January – September 2010
- Revenue EUR 421.8 million (EUR 372.3 million prev. year), increase 13.3%
- Result before interest, taxes, depreciation and amortisation (EBITDA) EUR 69.9 million (EUR 28.1 million), increase 148.6%
- Earnings per share were 0.12 (-0.80) EUR/share

JANUARY – SEPTEMBER 2010 IN BRIEF

* In 2009, key indicators per share have been retroactively adjusted with the share issue adjustment factor.

Calculation of key ratios is presented under ’Calculation of ratios’.

GENERAL MARKET DEVELOPMENT

During the year, the market volumes have started to recover from the sharp drop experienced during 2009, but remained still far away from the 2008 levels. Based on the statistics by the Finnish Maritime Administration (FMA), the Finnish seaborne imports carried in container, lorry and trailer units increased by 14% and exports by 16% during January-August 2010 compared to the previous year (measured in tons). According to the statistics published by Shippax, trailer and lorry volumes transported by sea between Southern Sweden and Germany decreased in January-August by 1% compared to 2009. During the same period, private and commercial passenger traffic between Finland and Germany increased by 5% and decreased between Finland and Sweden by 2% (FMA).

FINNLINES TRAFFIC

During the first quarter of the year, traffic was affected by a number of external disturbances. Severe ice conditions in the northern parts of the Baltic Sea, stevedores' overtime ban in Finnish ports and the 16-day stevedoring strike in Finland all caused several temporary schedule changes, reroutings and stoppages. Especially the stevedores' strike had big impacts as practically all ro-ro traffic to and from Finnish ports was halted during the strike. By the end of March, the situation normalised and the traffic returned to the normal pattern. During the third quarter of 2010, the Company operated on average 23 vessels in its own traffic, as in the previous year 2009.

The cargo volumes transported during January-September totalled approximately 470,000 (450,000 in 2009) units, 39,000 (25,000) cars (not including passengers’ cars ) and, in addition, 1,491,000 (1,469,000) tons of freight not possible to measure in units. In addition, some 522,000 private and commercial passengers were transported (around 424,000), an increase of 23%. Compared to January-September of 2009, the number of private passengers (excluding lorry drivers) transported by the Company increased by 45%.

PRODUCTIVITY

At the end of 2009 the fleet capacity was adjusted to new market requirements both on number of ships and the correct allocation of tonnage in specific trades.

In 2009, the Group started a significant process to merge group companies and businesses. This process is continuing during 2010 and will result in a much leaner company structure, thus creating further savings in administration and personnel costs.

FINANCIAL RESULTS

July – September 2010

The Finnlines Group recorded revenue totalling EUR 147.5 million (130.5), an increase of 13.0% compared to the same period in 2009. Shipping and Sea Transport Services generated revenue amounting to EUR 135.9 million (118.8) and Port Operations EUR 17.7 million (17.5). The internal revenue between the segments was EUR 6.1 million (5.8).

Result before interest, taxes, depreciation and amortisation (EBITDA) was EUR 24.6 million (13.3), an increase of 85.6%. Vessel lease expenses decreased by EUR 7.5 million. Other operating expenses totalled EUR -42.8 million (-48.5).

Result before interest and taxes (EBIT) was EUR 9.3 million (-1.7). Financial income was EUR 0.3 million (1.3) and financial expenses totalled EUR -6.4 million (-6.1). Result before taxes (EBT) was EUR 3.2 million (-6.5), an improvement of EUR 9.7 million compared to the same period in 2009. Earnings per share (EPS) were EUR 0.04 (-0.12).

January – September 2010

The Finnlines Group recorded revenue totalling EUR 421.8 million (372.3), an increase of 13.3% compared to the same period in 2009. Shipping and Sea Transport Services generated revenue amounting to EUR 385.7 million (333.6) and Port Operations EUR 53.9 million (56.4). The internal revenue between the segments was EUR 17.8 million (17.7).

Result before interest, taxes, depreciation and amortisation (EBITDA) was EUR 69.9 million (28.1), an increase of 148.6%. Personnel expenses have decreased by EUR 0.7 million and vessel lease expenses decreased by EUR 21.5 million. Other operating expenses totalled EUR -124.9 million (-154.2) and included EUR 3.1 million (2.7) reimbursement of fairway dues and refund on harbour dues EUR 2.6 million (See Chapter ‘Essential Changes in Legal Proceedings’).

Result before interest and taxes (EBIT) was EUR 25.2 million (-18.1). Financial income was EUR 3.2 million (2.9) and financial expenses totalled EUR -19.8 million (-25.0). Result before taxes (EBT) was EUR 8.6 million (-40.2), an improvement of EUR 48.8 million compared to the same period in 2009. Earnings per share (EPS) were EUR 0.12 (-0.80).

BALANCE SHEET, FINANCING AND CASH-FLOW

Interest-bearing net debt increased by EUR 18.2 million compared to the same period in 2009 and amounted to EUR 878.2 million (860.0). The equity ratio calculated from the balance sheet was 28.9% (29.4) and gearing was 203.4% (198.0). Vessel lease commitments have decreased by EUR 48.0 million from the end of September 2009.

At the end of the period, cash and deposits together with unused committed working capital credits and the undrawn part of committed credits for newbuildings amounted to EUR 124.9 million. The company has a commercial paper program of which the company has issued EUR 11 million.

In April 2009, Finnlines’ subsidiary Hanseatic Shipping sold MS Finnhansa to Grimaldi Group at the market price of EUR 40 million with a call option to repurchase the vessel at the same price. This call option was exercised in April 2010. MS Finnhansa (renamed Transrussia) was bought in July by Finnlines Deutschland GmbH and started plying in TransRussiaExpress traffic between Travemünde and St. Petersburg.

CAPITAL EXPENDITURE

Gross capital expenditure in the review period totalled EUR 78.8 million (17.0), and consists mainly of prepayments for newbuildings (EUR 31.1 million) and the purchase of Finnhansa vessel (EUR 40.0 million). Depreciation amounted to EUR 44.8 million (46.2). The holdings in associated companies have been reduced to zero due to the fact that Finnlines sold the associated company Simonaukion pysäköinti in April.

The delivery timetable of the 6 vessels under construction in China has been adapted to meet scheduled further redeliveries of the chartered tonnage. The new delivery times are: vessels Nos. 1 and 2 at the end of the first quarter of 2011, vessels Nos. 3 and 4 during the fourth quarter of 2011, vessel No. 5 at the end of the third quarter 2012 and vessel No. 6 during the fourth quarter of 2012.

PERSONNEL

The Group employed an average of 2,104 (2,146) persons during the period, consisting of 1,144 (1,167) persons on shore and 960 (979) persons at sea.

DECISIONS TAKEN BY THE ANNUAL GENERAL MEETING

The Annual General Meeting of Finnlines Plc approved the Financial Statements.

The Meeting approved the Board of Directors’ proposal not to pay any dividend.

The Annual General Meeting decided that the Board of Directors shall have six members. The following were re-elected to the Board: Mr. Emanuele Grimaldi, Mr. Diego Pacella, Mr. Gianluca Grimaldi, Mr. Antti Pankakoski, Mr. Olav Rakkenes and Mr. Jon-Aksel Torgersen. The Board elected Mr. Emanuele Grimaldi Chairman and Mr. Diego Pacella Vice-Chairman.

The firm of authorised public accountants Deloitte & Touche was appointed as the Company’s auditors for 2010.

The Annual General Meeting authorised the Board of Directors to decide on the issuance of new shares in one or several tranches so that the total number of shares issued based on the authorization is 20,000,000 at maximum. The authorization is valid until the next Annual General Meeting. The authorization replaces the Annual General Meeting’s authorization to decide on a share issue of 15 April 2009.

RISKS

The main business risk in shipping is overcapacity of tonnage. Overall the global ro-ro market looks better than other maritime transport sectors, where newbuildings are further increasing the imbalance of supply and demand of tonnage. For the ro-ro sector this does not apply. Moreover, around 50% of the current global ro-ro fleet is over 25 years old and needs to be scrapped for environmental reasons.

Finnlines constantly monitors the stability and the payment behaviour of its customers and currently there are no significant risks related to this.

Finnlines holds adequate credit lines to maintain liquidity in the current business environment.
 
The annual report 2009 contains a thorough description of Finnlines’ risks and risk management, and there are no essential changes to that report.

ESSENTIAL CHANGES IN LEGAL PROCEEDINGS

The Annual Report 2009 contains a thorough description of legal proceedings and the following is a description of the changes compared to what was reported in the annual report:

The Helsinki District Court rendered on 3 March 2010 its judgment in the action initiated by Mutual Pension Insurance Company Ilmarinen against Finnlines Plc. In its action Ilmarinen objected to the decision by Finnlines’ Annual General Meeting held on 20 May 2008 to distribute EUR 180,216.39 as a minimum dividend and demanded that the minimum dividend be increased. The District Court approved Ilmarinen’s claim to have the resolution of the Annual General Meeting amended so that the minimum dividend instead of EUR 180,216.39 as above should have been EUR 17,181,000. In addition, the District Court ordered Finnlines to compensate Ilmarinen’s legal costs by an amount of EUR 300,035.15 together with interest at statutory rate. As Finnlines has assessed Ilmarinen’s claim not being justifiable, no amount relating to the claim has been recorded. Finnlines filed an appeal with the Helsinki Court of Appeal against the judgement by the Helsinki District Court in April 2010 and the case is under process.

Taxation of internal vessel sales carried out in 2007 by Finnlines’ Swedish subsidiary includes uncertainties. The decision of the tax authorities was that a SEK 97.2 million (EUR 9.5) tax debt should be paid. The Company has been granted postponement of this payment as it has appealed in the matter and the court proceedings are under way. As the Company recorded a deferred tax liability due to the temporary timing difference in the tax year in question, this matter does not have any significant effect on the Company’s result.

Sub-chartering of MS Birka Transporter and MS Birka Exporter to Scandinavian Shipping Investment A/S (’SSI’) caused Finnlines a loss of time charter hires and expenses in total EUR 326,211, as SSI terminated the charters in summer 2009. Since the parties could not reach an agreement, Finnlines started arbitration proceedings against SSI for payment of the outstanding time charter hires and expenses. Finnlines has received SSI’s counter claim in the amount of EUR 1,182,298. Finnlines considers the basis of the counter claim groundless. The charters are subject to Finnish law and the place of arbitration is Helsinki. The arbitration panel has not yet decided the time for the main hearing of the arbitration proceedings.

Finnlines addressed material appeals to the Finnish Customs and the Port of Helsinki for rectification of the paid fairway and port dues based on the incorrect tonnage certificates of the Star-class vessels issued by the Swedish and Finnish maritime authorities. The Finnish Customs have refunded the excess paid fairways dues entirely as from the year of the construction of each Star-class vessel. The Port of Helsinki decided to refund the excess paid ports dues only in the amount of EUR 554,550 for 2009. Finnlines considered the decision of the Port of Helsinki groundless and appealed to the Administrative Court of Helsinki for refunding of the entire non-refunded excess port dues in the amount EUR 2,087,418. The case is under process. The yet non-refunded part of the fairway dues was booked as crediting other operating expenses in the second quarter 2010, based on management’s estimate of the outcome of the case.

FINNLINES PROSPECTS FOR 2010

The transport volumes have increased from 2009 but have stabilised on a considerably lower level compared to year 2008. The passenger volumes were considerably higher during the summer season compared to previous year.

The Company expects the positive development compared to 2009 to continue for the rest of the year.

The Group Financial Statement bulletin for 1 January – 31 December will be published on Wednesday,
2 March 2011.

Finnlines Plc
The Board of Directors

 Uwe Bakosch
 President/CEO

ENCLOSURES

- Consolidated statement of comprehensive income, IFRS
- Consolidated balance sheet, IFRS
- Consolidated statement of changes in equity, IFRS
- Consolidated cash flow statement, IFRS
- Revenue and result by business segments
- Property, plant and equipment
- Contingencies and commitments
- Revenue and result by quarter
- Shares, market capitalisation and trading information
- Calculation of ratios

DISTRIBUTION

NASDAQ OMX Helsinki Ltd.
Main media

This interim report is unaudited.