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CFO's review 2018

Working for sound profitability – controlling costs and increasing efficiency

Financial performance

Favourable trading conditions and the increased capacity helped us push cargo volumes up over 6 per cent to 754,000 units, up from 709,000. We shipped 163,000 cars (not including passengers’ cars), 11 per cent more than last year, and carried 655,000 passengers, 6 per cent more than last year.

The Finnlines Group recorded revenue totalling EUR 589.4 (536.3) million in the reporting period, an increase of 9.9 per cent compared to the same period in the previous year. Shipping and Sea Transport Services generated revenue amounting to EUR 567.2 (516.0) million, of which passenger-related revenue was EUR 55.7 (51.9) million. The revenue of Port Operations was EUR 43.6 (42.5) million. Cargo volumes improved in most of our lines, which increased the turnover in the Shipping and Sea Transport Services segment. Compared to last year, oil prices were at a higher level, increasing the bunker costs by over 30 per cent to EUR 131.4 million. In Port Operations, the revenue continued to rise due to increased cargo handling activities.

We chartered out one of our ro-pax vessels, MS Finnclipper, from the Finland–Sweden route in May 2018 and replaced that with the Star class ro-pax vessel MS Finnswan (formerly Nordlink from the Malmö–Travemünde line). We bought the Star class ro-pax vessel, MS Europalink, a 4,200-lane-metre vessel from our parent company, the Grimaldi Group, for the Malmö–Travemünde line, instead. We sold one smaller ro-ro vessel, MS Finncarrier, in October 2018. The result for the period includes the gain on sale of EUR 5.1 million from the sale of MS Finncarrier.

The Group’s EBITDA, result before interest, taxes, depreciation and amortisation, was EUR 166.4 (152.3) million, an increase of 9.2 per cent. Net financial expenses decreased to  EUR -10.1 (-11.5) million. Financial income was EUR 0.4 (0.3) million and financial expenses EUR -10.5 (-11.8) million.

The result for the reporting period improved to EUR 95.1 million from the previous year’s EUR 82.6 million.

Increasing efficiency

We achieved most of our targets and ensured improvement in Finnlines’ financial performance. As long as we continue to focus on cost controlling and cost reductions, and as long as we further optimise our operations, routes and vessel utilisation, we can improve our efficiency further. Looking ahead, our operational efficiency will play an important role. Lengthening vessels, deploying larger vessels, newbuilding orders, traffic optimisations – everything will contribute to maintaining our competitiveness. In 2018, due to market growth and improved volumes and due to optimisation of routes and increased vessel capacity, we were able to raise our result for the period and also delivered well against all our core financial KPIs.

Investing for growth and sustainability

To remain competitive, we will continue our investments and have multiple projects under way. We completed our EUR 70 million Energy Efficiency and Emission Reduction Investment Programme to respond to the growing demand by increasing the cargo capacity of six ro-ro vessels. Each vessel now has 30 per cent additional capacity, meaning they can carry up to 4,000 lane metres of rolling cargo. The total increase in capacity was close to 6,000 lane metres.

As mentioned earlier, the major investment was the purchase of MS Europalink. The cost of acquiring the vessel was EUR 78 million. Other investments, apart from the lengthening project, consisted of normal replacement expenditure of fixed assets, the emission abatement system project on MS Europalink, refurbishment of passenger areas onboard the ro-pax vessels MS Finnswan and MS Europalink, investments in new cargo handling equipment and dry-dockings.

The Finnlines Group’s gross capital expenditure in the reporting period totalled EUR 135.4 (48.9) million, including tangible and intangible assets.

Finnlines continues to invest in increasing its vessel capacity and in April 2018 signed an order for three ro-ro vessels from the Chinese Jinling shipyard. These new technology vessels form our EUR 200 million Green Ro-ro Investment Programme and their delivery is expected from 2021–2022. The vessels are 238 metres long and will each have a cargo capacity of 5,800 lane metres.

Furthermore, to serve our customers better and more efficiently we are now working on developing a new Superstar ro-pax class concept. These Superstar ro-pax newbuildings will meet the highest technical production aspects and environmental standards. In addition to improved customer service, we aim towards increased energy efficiency and reduced emissions. The deliveries of these vessels are likely to take place in 2021–2022.

During the past decade, we have made a whole series of concrete investments totalling EUR 1 billion, including actions to promote environmental sustainability and corporate social responsibility. These actions include emission abatement system installations on 21 ships, fleet changes and route optimisation, fuel monitoring and slow steaming, silicone anti-fouling treatments, propulsion improvement and vessel lengthening investments. All investments were aimed at reducing fleet emissions per transported tonne.

Capital structure

Net cash generated from operating activities remained strong and was EUR 144.1 (122.5) million. Due to high capex, the interest-bearing debt decreased by EUR 5.4 million to EUR 452.8 (458.2) million, excluding leasing liabilities of EUR 0.0 (2.4) million. Net interest-bearing debt at the end of the period was EUR 450.9 (421.2) million. Net Interest-bearing Debt/EBITDA (rolling 12 months) ratio amounted to 2.7 (2.8) and the equity ratio calculated from the balance sheet was 53.3 (51.1) per cent. Gearing decreased slightly to 68.1 (68.9) per cent. Apart from stronger equity ratio, Finnlines has also built a decreasing maturity profile, which is more evenly spread over the years. The Group also has financial flexibility through strong liquidity position which at the end of the period, with cash and cash equivalents together with unused committed credit facilities, amounted to EUR 154.5 (192.0) million.

The shareholder structure further reinforces Finnlines’ existing solid capital structure. Being the most efficient shipping company in the Baltic Sea as part of the Grimaldi Group and with their decades-long knowledge of global shipping, Finnlines has extra leverage to operate against its competitors both operationally and financially.

Tom Pippingsköld