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Finnlines Plc Stock Exchange Release 15 April 2008
SPEECH OF THE PRESIDENT AND CEO AT THE AGM ON 15 APRIL 2008
Esteemed Shareholders, Ladies and Gentlemen,
Eventful year 2007
For Finnlines, 2007 was an eventful year: the Italian Grimaldi Group acquired a controlling interest in the company, last spring nearly the entire Board changed and a new President and CEO was appointed.
The previous Annual General Meeting elected to the Board Jon-Aksel Torgersen, who serves as Chairman. He is the managing director of Astrup Fearnley AS, which is a large Norwegian shipping and financial sector company. Heikki Laine has long experience in the forwarding and logistics business. Antti Pankakoski is currently the managing director of Altia Corporation and has earlier acted, among other things, as the managing director of Silja Line Oy. Olav K. Rakkenes has retired from the position of the managing director of Atlantic Container Line. Diego Pacella is the financial director of Grimaldi Group and Emanuele and Gianluca Grimaldi are managing directors of Grimaldi Group. The company's Board thus represents a wide range of expertise in the logistics, freight and passenger traffic as well as in the financial sector.
As for the operations, the year was marked with major changes in the company's fleet, as the last three of the new ropax vessels were delivered and the conversions of the older ships - as part of this investment programme - were completed.
Hence, the service concept on the Helsinki - Travemünde route was in place in the spring. By the autumn, NordöLink's (Malmö - Travemünde) entire fleet (four vessels) had been replaced and the FinnLink traffic has received one additional ship and the capacity of one vessel has been increased by 500 lane metres.
The changes in the fleet caused non-recurring costs which, of course, were reflected in the consolidated results.
Financial performance of the year under review
The company's revenues increased by 7%, totalling over EUR 686 Mio. The operating profit without vessel sales stayed at the same level as in the previous year but the financing costs pulled the result before taxes and non-recurring items down by EUR 19 Mio., that is to EUR 28 Mio. The net result in the year of comparison included the sales profit from the sale of the (Team Lines) container operations sold in 2006. ROE was 8% (previous year 14%) and ROI 7% (10%).
Investments of cash flow
Our multi-purpose (ropax) fleet concept has always been based on owned tonnage, because on the market the availability of such ships is poor. Particularly ice-strengthened tonnage is practically unavailable.
When Finnlines decided to order the new generation ropax vessels in 2003 and 2004, it committed itself to an investment totalling over EUR 550 Mio.
As to more traditional vessels, the need for owned fleet has been less critical, as such vessels have been more easily available on market. However, the situation has changed fundamentally in a short time. There is a continuous shortage of modern, ice-strengthened tonnage which meet today's quality requirements. This is naturally also reflected on the time-charter market, where the prices have soared to new heights. It is possible that today we may have to pay the same price for a ship built in the yearly 1990's as we are used to pay for a ship built after the millennium.
We now have around 25 time chartered ro-ro vessels in service. To be able to better secure our capacity and ensure that we have enough right type of vessels in operation, we decided to order six newbuildings from China in August 2007. The value of this order is EUR 240 Mio. In addition, we decided to exercise the purchase options included in our charter parties on two vessels. The fact that we had to start arbitration proceedings also shows how hot the market for this type of vessels is at the moment. However, the matter was solved to the satisfaction of both parties and the vessels will be transferred to Finnlines during April 2008. The total solution also included a purchase of two somewhat smaller ro-ro vessels also already in our service. The ships will be transferred to our possession by the end of April. Two sister ships of the latter two vessels we will loose from our traffic, with the charter parties expiring at the turn of the year 2008/2009, because they were sold to other operators by the owners. The total value of the purchase of these four vessels was EUR 120 Mio. At the same time, we have also renewed charter parties, as an example the four year agreement concluded with Birka Cargo on three vessels.
The operations of the Port of Helsinki will be transferred to Vuosaari Harbour at the end of this year. We have had and will continue to have costs arising from this since 2006 totalling approximately EUR 100 Mio.
We will have invested in the renewal of the fleet and a new harbour in total about EUR 1,000 Mio. in less than ten years when the last new ship from China will have been delivered.
Of the investments mentioned, the ropax vessels were paid for the main part when delivered in 2006 and 2007, the conversions in 2007, the Chinese ro-ro vessels will be paid mostly in advance starting in 2007 and the four ships in service are paid now in April. In the financial sense, 2007 and 2008 will be very heavy years - investments in 2007 were EUR 390 Mio. and in 2008 will be roughly EUR 230 Mio., which means that the gearing will be considerably higher and the equity ratio lower than before.
In our company, we have been used to consider the 30% limit of the equity ratio important, due to increased margins on loans. Finnlines aims to have its long-term equity ratio at 35 - 40%.
This is the reason why the Board has included in the agenda of this meeting an authorisation for a share issue, which would ensure that the degree of solvency can be maintained at a tolerable level even in critical situations.
The company has always considered the cash flow vitally important and that is the case in this situation in particular, because strong cash flow is the necessary requirement for a major investment programme. The company's current cash flow before investments is on average EUR 90 Mio. a year. As part of looking after the cash flow, Finnlines has always sought to optimise taxation in the limits of law, and the Group has been able to be very tax-effective in paid tax terms.
The investment decisions made will bring stability to the company operations and will provide a basis for further expansion. In addition, they will ensure Finnlines' competitiveness and efficiency in the future. Finnlines seeks to maintain its strong position in the Baltic and North Sea traffic and increase - but not only - its Russia-related traffic. Further, we will focus on the increase of passenger traffic on our ropax vessels. The acting management believes that these investments targeted at future will bring substantial benefits to the Group and the shareholders.
Review on the current year
This year's first quarter is already behind us. Although the report on the period is not quite completed yet - it will be published on 7 May - we can already say that the revenues and the operating profit exceed those of the same period last year.
Finnlines' transported volumes were as follows:
Unitised cargo 207,862 (in 2006 189,991) units, 27,590 (25,451) cars and 768,462 (664,637) tons of non-unitised freight. A total of 126,536 (97,124) passengers (incl. freight-related passengers) were transported in three months.
According to the shareholder list of Friday, 11 April 2008, 75% of the shares in Finnlines were owned by ten biggest shareholders, of which 58 % owned by Grimaldi-Group and the total of the shareholders was around 2300.
Such a big number of owners require, of course, that fairness in the company operations has to be shown in every situation.
I conclude my presentation with a personal opinion: It is very regretful that the publicity has tried to confront the company's different shareholder groups and their interests, as in reality there is no such confrontation in the company's operations. Finnlines has a big industrial major shareholder and a very competent Board, which is capable and, above all, willing to develop the Finnlines Group. This cannot clash with the interests of other shareholders. I would hope that a constructive dialogue could be created between different shareholder group and the Board. Every shareholder acts, of course, in his or her own interests and is entitled to exercise the rights rendered by the shares.
President and CEO
OMX Helsinki Stock Exchange