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CFO's review 2019

Finnlines Group’s strong balance sheet is geared towards growth

Financial performance
Finland relies on shipping for 90% of its exports and 80% of its imports. Finnlines transported 738,000 cargo units in 2019. In 2018, the corresponding figure was 754,000. The number of cars transported was 166,000 (163,000). The number of passengers who travelled with us was 665,000, which is an all-time record.

The Finnlines Group’s revenue declined slightly along with the trend in Finnish exports and imports to EUR 574.8 (589.4) million. Shipping and Sea Transport Services generated revenue amounting to EUR 550.9 (567.2) million, of which passenger-related revenue was EUR 59.9 (55.7) million. The revenue of Port Operations was EUR 45.4 (43.6) million. Cargo volumes were somewhat lower along with Finland’s export and import volumes, which resulted in a lower turnover in the Shipping and Sea Transport Services segment. In Port Operations, the revenue continued to rise due to increased cargo handling activities. The internal revenue between the segments was EUR 21.5 (21.4) million. The result before interest, taxes, depreciation and amortisation (EBITDA) was EUR 169.8 (166.4) million, an increase of 2.1%. Net financial expenses decreased to EUR -7.5 (-10.1) million. Financial income was EUR 0.3 (0.4) million and financial expenses EUR -7.7 (-10.5) million.

The Finnlines Group’s result for the reporting period increased to EUR 98.3 million from the previous year’s EUR 95.1 million. The result improvement was actually EUR 8.2 million because the 2018 result included a gain on sale of EUR 5.1 million on MS Finncarrier vessel. 2019 showed again that our hard work on improving efficiency in several areas paid off. The 2019 result follows our successful track record over the past years and was Finnlines’ best ever result in our 72 years of operation.

Increasing efficiency
We achieved most of our targets and ensured improvement in Finnlines’ operational performance. We will continue to focus on our basic principles, i.e. cost controlling and cost reductions. In other words, whenever and wherever possible, we will go through every function and every cost item in order to find out if there is room for further improvement. Apart from operational efficiency, we can really improve our cost-efficiency through investments, including propulsion investments, lengthening vessels, not to mention our EUR 0.5 billion newbuilding programme to order five ultra green vessels with state-of-the-art technology in fuel economy. Hydrodynamic hull design, air lubrication system, propeller and rudder systems, digitalised monitoring systems – everything will contribute to improving our efficiency and, thus, our competitiveness.

“A strong focus on energy efficiency and emission reduction goes together with improving our return on the capital employed on our fleet.”

Over the years, we have made, substantial investments in our existing fleet, both environmental and capacity related. The Finnlines Group’s return on capital employed (ROCE) remained at a good level being 9.5% (9.6%). We have invested in emission abatement technology covering almost all our vessels. A year ago, we completed our Energy Efficiency Programme where we lengthened six of our ro-ro vessels. After lengthening, considerably more cargo can be loaded onboard a ship, bringing online another 6,000 lane metres of rolling cargo – this equals two sizeable vessels. These investments have contributed to our sustainable development and, for example, fuel consumption per transported ton has decreased when considerably more cargo can be loaded onboard a ship. Moreover, these investments allow us to benefit from economies of scale.

Investing for growth and sustainability

Finnlines has done a lot to ensure that our financial and operational performance is excellent. The Finnlines Group’s financial solidity is sound. The strategic, systematic actions we took during 2019 laid the foundation for continued improvements in the future. To further improve our profitability, we have set aside EUR 500 million for our newbuilding programme. A strong focus on energy efficiency and emission reduction goes together with improving our return on the capital employed on our fleet and being a partner of choice to our customers.

At present, we have two major newbuilding projects ongoing in which the Grimaldi Group’s and Finnlines‘ highly skilled employees have contributed to making these vessels flagships, both in terms of size and technology. The economies of scale have been one of the key measures in our strategy for sustainable development, and a great contributor to obtain environmental benefits. The future new vessels will use lithium-ion battery systems that enables zero-emission operations in port. Various innovations in environmental technology will improve the energy efficiency of the vessels and reduce emissions further.

It is particularly worth highlighting the increased vessel capacity. While Finnlines’ transportation capacity has remained quite unchanged compared to 2008, the average ro-ro vessel capacity has grown over 80% and the number of ro-ro vessels needed has reduced by 40%. To give a rough comparison, one of our newbuilding ro-ro vessels almost equals in size to two of our existing ro-ro vessels.

Capital structure

Net cash generated from operating activities remained strong and was EUR 173.6 (144.1) million. The interestbearing debt decreased by EUR 80.6 million to EUR 372.2 (452.8) million, excluding leasing liabilities of EUR 19.3 (0.0) million. Leasing liabilities increased due to implementation of IFRS 16. Net interest-bearing debt at the end of period was EUR 363.0 (450.9) million. Net interest-bearing debt/EBITDA (rolling 12 months) ratio amounted to 2.1 (2.7) and the equity ratio calculated from the balance sheet was 58.5% (53.3%). Net gearing resulted in 50.8% (68.1%).

The Group 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 164.2 (154.5) million.

Finnlines is fully owned by the Grimaldi Group, which is a multinational logistics group specialising in the operation of roll-on/roll-off vessels, car carriers and ferries. Being at the absolute forefront in efficiency and sustainability, and belonging to one of Europe’s largest ro-ro and ro-pax companies, the Grimaldi Group, Finnlines has the required financial flexibility to invest close to EUR 0.5 billion in the ultra green vessels in the coming years and safeguard its competitive position among its peers through our growth strategy.

Tom Pippingsköld