Viking Line: Half year financial report January - June 2024

Viking Line Abp                           HALF YEAR FINANCIAL REPORT                 15.08.2024, 9.00 AM

A half-year characterized by weaker demand

JANUARY-JUNE 2024

(compared to January–June 2023)

• Sales amounted to EUR 219.1 M (EUR 226.3 M).
• Other operating revenue was EUR 0.6 M (EUR 8.9 M, including the EUR 8.6 M capital gain from the sale of Rosella.) 
• Operating income totalled EUR -4.3 M (EUR 17.1 M, including the EUR 8.6 M capital gain from the sale of Rosella.) 
• Net financial items were EUR -8.1 M (EUR -7.7 M). 
• Income before taxes totalled EUR -12.4 M (9.4 M, including the EUR 8.6 M capital gain from the sale of Rosella.) 
• Income before taxes totalled EUR -12.5 M (EUR 7.2 M, including the EUR 8.6 M capital gain from the sale of Rosella.)
• Investments mainly in Viking Cinderella and Birka Gotland totalled EUR 15.4 M (EUR 7.7 M).

Outlook for the full financial year 2024

The Board of Directors has decided to revise its earnings forecast for 2024. Income during the peak season – from June to August, when most of the company’s income is generated – is forecast to be on a par with the strong figure posted for the same period in 2023. Initial traffic for Birka Gotland has not met the company’s expectations and has entailed higher start-up costs than expected. In addition, Viking Glory’s dry-docking and Viking Grace’s and Gabriella’s cancelled departures had a negative impact on sales and earnings in the second quarter.

There is significant uncertainty due to the recession under way in Finland, which has a negative impact on customers’ consumption patterns. The current geopolitical situation and its potential impact mostly on energy prices are also a factor contributing to this uncertainty.

In view of this, the Board expects that income before taxes in 2024 will be weaker than in 2023 if the EUR 8.6 M capital gain from the sale of Rosella in 2023 is not included.

On April 22, 2024, the outlook was:

Provided that energy prices remain at current levels and people’s propensity to travel is sustained, the Board of Directors expects that income before taxes in 2024 will be on a par with the figure for 2023 if the EUR 8.6 M capital gain from the sale of Rosella in 2023 is included.

SECOND QUARTER OF 2024

(compared to the second quarter of 2023)

• Sales amounted to EUR 125.9 M (EUR 132.4 M). 
• Other operating revenue was EUR 0.2 M (EUR 0.1 M). 
• Operating income totalled EUR 6.2 M (EUR 18.0 M). 
• Net financial items were EUR -4.3 M (EUR -3.9 M). 
• Income before taxes totalled EUR 1.8 M (EUR 14.0 M). 
• Income after taxes was EUR 1.8 M (EUR 11.1 M).

COMMENTS FROM PRESIDENT AND CEO JAN HANSES

Results for the first six months of the year were characterized by consumer caution. The Finnish economy is in recession and the recovery is going slowly. While inflation in Finland has eased, this is not reflected so far in consumer behaviour. The weak Swedish krona has reduced purchasing power in the Swedish market.

The launch of Gotland Alandia Cruises has entailed additional one-off costs while occupancy rates  during the period up to June did not meet our expectations. Occupancy rates have improved during the summer and are expected to remain at a good level during the autumn.

In April, Viking Glory was dry-docked. The date for the dry-docking, originally planned for January 2025, was moved up. In addition, Viking Grace and Gabriella both had unplanned service disruptions in April and May.

Results for the first six months of the year excluding one-off items and particularly for the second quarter were thus weaker than expected. However, it is gratifying that ticket proceeds reached our targets, so we have been able to offset the cost of emission allowances, which are to be surrendered starting on in 2024. The geopolitical situation, with war in nearby regions, has not had any noticeable impact on people’s propensity to travel but contributes to continued uncertainty about energy prices.

Results for the 2024 peak season are on a par with results for the same period last year, while our outlook for the autumn is characterized by some degree of uncertainty.

Maritime transport is being impacted at present by future environmental standards. Starting this year, our operations are subject to the EU Emissions Trading System, which means that we are now obliged to shoulder the cost of emission allowances, which in the medium term we can only partly offset through our continued energy efficiency work. The lack of alternative fuels at realistic prices is the greatest challenge for the industry. Viking Line works actively for reduced emissions in various projects. Passengers and cargo customers on the Turku–Mariehamn/Långnäs-Stockholm route can now reduce their climate impact by purchasing renewable biofuel in proportion to the amount used for their travel and thus reduce carbon dioxide emissions from their journey by up to 90 per cent. Viking Line is also taking part in two major projects where work is being carried out to create green transport corridors for the Helsinki-Tallinn and Turku-Åland-Stockholm routes.

The first six months of 2024 have entailed changes in our operations, with expanded service between Finland and Sweden and the launch of cruise service in partnership with Gotlandsbolaget. This has entailed changes for our staff in the form of switches to our other vessels and reflaggings. Because of these changes, we have been able to hire new staff since the number of vessels in the fleet has increased

I would like to extend my warm thanks to our customers and partners for the faith they have shown in us and their good cooperation. I would also like to give a big thank you to our staff for their fine performance during this period.

KEY METRICS, SUMMARY

SERVICE AND MARKET

During most of the report period, the Viking Line Group provided passenger and cargo carrier services using five vessels in the northern Baltic Sea and the Gulf of Finland. On March 20, the vessel Birka Gotland, which Viking Line owns jointly with Gotlandsbolaget, launched cruise service from Stockholm. Prior to the launch, the vessel underwent a major dry-docking and upgrade.

Viking Cinderella was dry-docked during the period January 1 to January 19. After this, it returned to making day cruises between Stockholm and Mariehamn until March 4, and then on March 8 began service on the Helsinki–Mariehamn–Stockholm route. Viking Cinderella was out of service for four days in conjunction with its removal from the Swedish Register of Ships on March 5 and its entry in the Åland Register of Ships. Since March 5, the vessel has sailed under a Finnish flag.

Viking Glory was dry-docked during the period April 8 to April 17. From April 11 to April 17, it was replaced in service by Viking Cinderella on the Turku-Mariehamn/Långnäs-Stockholm route. Both Viking Grace and Gabriella also cancelled departures due to unplanned technical maintenance

During the first half of 2023, Rosella served between Mariehamn and Kapellskär until January 8, when it was taken out of service. Viking XPRS was out of service for three days in conjunction with its removal from the Estonian Register of Bare-Boat Charterers on March 6, 2023, and entry in the Åland Register of Ships. Since March 6, the vessel has sailed under a Finnish flag. , Viking Grace was also dry- docked last year during the comparative period.

The total number of passengers on the Group’s vessels during the report period was 2,062,271 (2,185,843). The Group had a total market share in its service area of approximately 33.0% (34.8%). The number of passengers on Birka Gotland since the launch of service was 139,062.

Market demand for travel in the company’s service area as a whole softened during the first six months of the year. We noted a weakening in demand for service between Finland and Sweden, while traffic between Finland and Estonia increased somewhat. Tighter household finances and a weak Swedish krona adversely affected the chances of increasing occupancy rates and capacity utilization during the first half of the year.

The period includes disruptions in service, in the form of vessel dry-dockings for both Viking Line and its competitors, which affects comparative figures.

The Group’s total cargo volume was 66,385 cargo units (64,872). The Group’s share of the cargo market was approximately 16.8% (16.9%).  The growth in volume is directly linked to increased demand for transport in the international transport market at the end of the period. The increase in cargo volumes is due to an improved economic outlook for Finland’s most important export markets and for global trade. During the period, political strikes in Finland had a negative impact on transport. However, with expanded service on its Helsinki-Mariehamn-Stockholm route, Viking Line was able to increase cargo volumes compared to previous years.

The market share for passenger cars was approximately 28.5% (27.3%).

SALES AND EARNINGS FOR JANUARY – JUNE 2024

Consolidated sales decreased 3.2% to EUR 219.1 M during the period January 1–June 30, 2024 (EUR 226.3 M January 1–June 30, 2023). Operating income totalled EUR -4.3 M (EUR 17.1 M). Consolidated income before tax was EUR -12.4 M (EUR 9.4 M). The comparative figures include the capital gain from the sale of Rosella, which was EUR 8.6 M. Income before tax excluding the capital gain in 2023 is EUR 0.8 M. It should also be noted that demand in our service area was weaker than expected. Birka Gotland’s initial traffic has not met the company’s expectations, with weak sales and earnings as a result. Higher start-up costs also had a negative impact on sales and earnings. Viking Glory’s dry-docking and Viking Grace’s and Gabriella’s cancelled departures also had a negative impact.

Passenger-related revenue decreased 4.3% to EUR 192.3 M (EUR 201.1 M), while cargo revenue was EUR 25.2 M (EUR 23.6 M) and other operating revenue was EUR 1.6 M (EUR 1.6 M). The sales contribution was EUR 170.4 M (EUR 172.4 M).

Operating expenses increased 6.3% to EUR 160.2 M (EUR 150.7 M). Salary and other employment benefit expenses increased 12.2% or EUR 6.5 M. Other operating expenses increased 3.1% or EUR 3.0 M.

SALES AND EARNINGS FOR THE SECOND QUARTER OF 2024

Consolidated sales decreased 4.9% to EUR 125.9 M during the period April 1– June 30, 2024 (EUR 132.4 M April 1–June 30 2023). Operating income totalled EUR 6.2 M (EUR 18.0 M). Birka Gotland’s initial traffic has not met the company’s expectations, with weak sales and earnings as a result. Viking Glory’s dry-docking and Viking Grace’s and Gabriella’s cancelled departures also had a negative impact.

Passenger-related revenue decreased 6.7% to EUR 112.6 M (EUR 120.7 M), while cargo revenue was EUR 12.5 M (EUR 10.9 M) and other operating revenue was EUR 0.8 M (EUR 0.8 M). The sales contribution was EUR 98.7 M (EUR 101.1 M).

Operating expenses increased 11.3% to EUR 85.1 M (EUR 76.4 M). Salary and other employment benefit expenses increased 10.3% or EUR 3.0 M while other operating expenses increased 11.9% or EUR 5.7 M.

INVESTMENTS AND FINANCING

The Group’s investments for the period January 1 to June 30, 2024, totalled EUR 15.4 M (EUR 7.7 M). The Group’s total investments represented 7.0% of sales (3.4%). Most of these investments are related to the dry-docking of Viking Cinderella, which underwent extensive refurbishment. This investment underscores our commitment to keeping the vessel in service and in our fleet for many years to come. The other major investment is related to Birka Gotland and its launch in service. This is a joint venture with Gotlandsbolaget, with each company financing 50% of the investment. Viking Glory was also dry-docked during the period.

The Group’s long-term interest-bearing liabilities on June 30, 2024, totalled EUR 133.1 M (EUR 168.5 M).

The debt/equity ratio was 49.2% compared to 47.8% for the same period last year.

The Group’s cash and cash equivalents at the end of June totalled EUR 58.0 M (EUR 97.7 M). Unutilized credit lines in the Group totalled EUR 22.1 M (EUR 0.1 M).

Net cash flow from operating activities was EUR 23.3 M (EUR 30.7 M). Net cash flow from investing activities was EUR -13.6 M (EUR 4.5 M) and net cash flow from financing activities was EUR -37.0 M (EUR -26.6 M).

Most of the Group’s loan agreements include loan covenants according to market terms. The financial covenants in the loan agreements consist of minimum requirements for liquidity and solvency and a maximum net financial debt-to-EBITDA ratio.

The dividend restriction in one of the Group’s loan agreements continues to apply in the event the Group’s debt-to-EBITDA ratio exceeds 5.0. The Group’s debt-to-EBITDA ratio is below 5.0, so the dividend restriction does not apply.

Viking Line’s Abp’s shareholding in Rederiaktiebolaget Eckerö has exceeded 20% since November 22, 2023, so Rederiaktiebolaget Eckerö has been recognized as a company with a participating interest undertaking using the equity method since then. An initial positive income effect of EUR 2.5 M arose in the transition and thus affected income in 2023.

ORGANIZATION AND PERSONNEL

The average number of full-time employees in the Group was 2,305 (2,138), 1,848 (1,611) of whom worked for the parent company. Land-based personnel totalled 459 (469) and shipboard personnel totalled 1,846 (1,669). On March 5, Viking Cinderella was reflagged from a Swedish to a Finnish flag.

During the period, 193 people employed by one of Viking Line Abp’s subsidiaries were  assigned to work at the joint venture Gotland Alandia Cruises AB, which provides cruise service with the vessel Birka Gotland. Staff contracted out by Viking Line were mainly catering staff.

During the comparative period, Viking XPRS hired an average of 65 people employed by a staffing company in addition to Viking Line’s own personnel. Since its reflagging on March 6, 2023, the vessel is only staffed with Viking Line’s own personnel.

RISK FACTORS

Viking Line’s operations are exposed to different kinds of risks, which vary in their scope and impact on operations, financial results and the company’s ability to meet certain social and environmental objectives. The relevant risks have been classified into four categories: strategic, operational, damage and financial risks. The risks continue to be the same as when the company’s year-end financial statements were published.

Fluctuations in bunker (vessel fuel) prices have an indirect impact on the Group’s earnings. To partly offset the risk of higher bunker prices, on June 30, 2024, the Group had fixed price agreements entered into for bunker purchases in effect from the start of the year to July 2024.

Since January 1, 2024, Viking Line records and recognizes emission allowance costs in accordance with the EU Emission Trading System for greenhouse gases (ETS). The company must surrender its first emission allowances by September 30, 2025. To reduce its price risk, Viking Line has started to purchase emission allowances. The company’s strategy until further notice is to purchase emission allowances on a regular basis in order to achieve a cost effect corresponding to the average price and use.

The company’s interest-bearing liabilities amounted to EUR 169.8 M as of June 30, 2024, 83.6% of which have a variable interest rate. The total variable interest rate consists of the market interest rate plus a margin that is specific to the company. Fluctuations in interest rates can have a negative effect on the company’s costs of funding and increase funding costs in the future.

OUTLOOK FOR THE FINANCIAL YEAR 2024

The Board of Directors has decided to revise its earnings forecast for 2024. Income during the peak season – from June to August, when most of the company’s income is generated – is forecast to be on a par with the strong figure posted for the same period in 2023. Initial traffic for Birka Gotland has not met the company’s expectations and has entailed higher start-up costs than expected. In addition, Viking Glory’s dry-docking and Viking Grace’s and Gabriella’s cancelled departures had a negative impact on sales and earnings in the second quarter.

There is significant uncertainty due to the recession under way in Finland, which has a negative impact on customers’ consumption patterns. The current geopolitical situation and its potential impact mostly on energy prices are also a factor contributing to this uncertainty.

In view of this, the Board expects that income before taxes in 2024 will be weaker than in 2023 if the EUR 8.6 M capital gain from the sale of Rosella in 2023 is not included.

On April 22, 2024, the outlook was:

Provided that energy prices remain at current levels and people’s propensity to travel is sustained, the Board of Directors expects that income before taxes in 2024 will be on a par with the figure for 2023 if the EUR 8.6 M capital gain from the sale of Rosella in 2023 is included.

EVENTS AFTER THE BALANCE SHEET DATE

The Board of Directors knows of no events after the balance sheet date that could affect this financial report.

Mariehamn,  August 15, 2024

VIKING LINE ABP

The Board of Directors


Jan Hanses
President and CEO

Financial information

The management’s Half-Year Financial Report Review was prepared in accordance with IFRS accounting and valuation principles. The accounting and valuation principles applied are the same as for the year-end financial statements for 2023. The figures have not been audited.

CONSOLIDATED INCOME STATEMENT BY QUARTER

CONSOLIDATED  STATEMENT OF COMPREHENSIVE INCOME BY QUARTER

KEY METRICS

Equity per share = Equity attributable to parent company shareholders / Number of shares.

Equity/assets ratio, % = (Equity including minority interest) / (Total assets – advances received).

When rounding off items to the nearest EUR 1,000,000, rounding-off differences of EUR +/– 0.1 M may occur.

NOTES TO THE HALF-YEAR FINANCIAL REPORT FOR THE PERIOD JANUARY-JUNE 2024

1.     Accounting principles

This Half-Year Financial Report has been prepared in accordance with International Financial Reporting Standards (IFRS) reporting and valuation principles and consists of a summary of the financial statements for the period in accordance with IAS 34.

The Half-Year Financial Report has been prepared in accordance with the same accounting principles, estimates and valuations as in the most recent annual accounts, unless otherwise indicated below.

This Half-Year Financial Report has not been subject to an audit.

When rounding off items to the nearest EUR 1,000,000, rounding-off differences of EUR +/- 0.1 M may occur.

2.     Estimates and judgements

In preparing the consolidated financial statements in compliance with IFRS accounting standards, the company’s management must make judgements and estimates about the future that affect the reported amounts for assets and liabilities, revenue and expenses as well as other information. The judgements and estimates contained in the financial statements are based on the best assessment of management on the date the Financial Report was published.

The geopolitical situation, with very volatile energy prices, affects the income statement and balance sheet. It is difficult to determine how long energy prices will fluctuate like this and what effects this will have on Viking Line’s future sales, earnings, financial position and cash flow. The actual outcome may deviate from estimates and judgements made.

The most important area that entails judgements is the valuation of the Group’s vessels. Market valuations are carried out on a regular basis by external assessors. The vessels’ residual values and estimated periods of use are examined yearly and adjusted if they deviate significantly from earlier values.

Until November 22, 2023, the holding in Rederiaktiebolaget Eckerö was included in financial assets at fair value through other comprehensive income, but the holding has been reclassified since then and is now reported  as a company with a participating interest undertaking using the equity method.

In valuing the Group’s leases, judgements are made as to how the Group will capitalize on any opportunity to extend the lease period or terminate the lease. Judgements are also made as to what discount rate is to be used in calculating the present value of the Group’s lease liability. The size of the Group’s lease liabilities and rights of use, as well as the payments for its lease liabilities and depreciation for its right-of-use assets, is affected by those judgements.

3.     Risks and liquidity

The Group’s cash and cash equivalents at the end of June totalled EUR 58.0 M (EUR 97.7 M). Unutilized credit lines in the Group totalled EUR 22.1 M as of June 30, 2024 (EUR 0.1 M). Net cash flow from operating activities was EUR 23.3 M (EUR 30.7 M). Net cash flow from investing activities was EUR -13.6 M (EUR 4.5 M) and net cash flow from financing activities amounted to EUR -37.0 M (EUR -26.6 M).

In August 2023, Viking Line and Gotlandsbolaget formed a joint venture which is tasked with developing and providing cruises with Birka Gotland between Stockholm-Mariehamn and Stockholm-Mariehamn-Visby. In March 2023, Gotlandsbolaget acquired Birka Stockholm (Birka Gotland) for EUR 38 M. In August 2023, Gotlandsbolaget sold 50% of the vessel to Viking Line for EUR 19 M, which was financed by Viking Line’s cash holdings. The vessel has been rechristened Birka Gotland.

Most of the Group’s loan agreements include loan covenants according to market terms. The financial covenants in the loan agreements consist of minimum requirements for liquidity and solvency and a maximum net financial debt-to-EBITDA ratio. These loan covenants met the requirements set during the period.

The company’s ability to meet the requirements set in existing financial agreements depends on its ability to generate a positive cash flow and earnings from its operations, which depends in part on factors beyond the company’s control.

Viking Line’s operations are exposed to different kinds of risks, which vary in their scope and impact on operations, financial results and the company’s ability to meet certain social and environmental objectives. The relevant risks have been classified into four categories: strategic, operational, damage and financial risks. During the year, geopolitical risks increased to some extent.

To partly offset the risk of higher bunker (vessel fuel) prices, as of June 30, 2024,  the Group had fixed price agreements entered into for bunker purchases from the start of the year through July 2024.

There is a risk, if the geopolitical situation deteriorates and energy prices rise significantly in the same way as in 2022, that the company may not generate sufficient cash flow or obtain additional financing to meet its obligations in accordance with its financial agreements.

As of January 1, 2024, Viking Line records and recognizes costs for emission allowances in accordance with the EU Emissions Trading System (ETS) for greenhouse gases. The first emission allowances are to be surrendered by September 30, 2025. To reduce its price risk, Viking Line has begun to purchase emission allowances. The company’s strategy until further notice is to purchase emission allowances on a regular basis in order to achieve a cost effect corresponding to the average price and use.

Future cash flows related to financial liabilities as of June 30, 2024:

4.     Segment information

Consolidated revenue decreased 3.2%, and passenger-related revenue decreased 4.3%.

5.     Other operating revenue

During the comparative period, Rosella was sold, which had a positive income effect of
EUR 8.6 M.

6.     Compensation to employees

On March 5, Viking Cinderella was reflagged from a Swedish to a Finnish flag.

During the period, 193 people employed by one of Viking Line Abp’s subsidiaries were  assigned to work at the joint venture Gotland Alandia Cruises AB, which provides cruise service with the vessel Birka Gotland. Employees contracted out by Viking Line were mainly catering staff.

During the comparative period, Viking XPRS was reflagged from an Estonian to a Finnish flag. Since its reflagging, the vessel is only staffed with Viking Line’s own personnel. When the vessel sailed under an Estonian flag, these services were purchased from a staffing company.

7.     Depreciation and amortization