Viking Line: Year-End Report for the period January - December 2019

Viking Line Abp       YEAR-END REPORT               13.2.2020, 9.00 AM

Viking Line doubles its earnings

January–December 2019 (compared to January–December 2018)

• Sales amounted to EUR 496.4 M (497.8).
• Other operating revenue was EUR 0.4 M (0.3).
• Operating income totalled EUR 17.4 M (9.3).
• Net financial items were EUR -3.8 M (-2.8).
• Income before taxes amounted to EUR 13.6 M (6.5).
• Income after taxes totalled EUR 10.8 M (5.5).

Fourth quarter 2019 (compared to fourth quarter 2018)

• Sales amounted to EUR 115.6 M (119.8).
• Operating income totalled EUR -0.1 M (1.6).

Outlook for the full financial year 2020

We expect that the passenger volume trend will be stable and that net sales per passenger will increase somewhat. Fixed-price agreements for a portion of the Group’s bunker (vessel fuel) costs for 2020 mitigate the risk of increased bunker costs. The trend for salary expenses is considered to be moderate. Income during the third quarter will be crucial to the Group’s earnings for the full financial year.

Competition is still tough in Viking Line’s markets, where operating conditions are affected by squeezed prices and volumes.  There is a risk that economic growth in the Asian market will come to a standstill due to the coronavirus.

The Board of Directors' assessment is that operating income for 2020 will remain on a par with operating income for 2019

Comments from President and CEO Jan Hanses

“Results for 2019 show that we are on the right path. We have had considerable success in reversing a downward trend. The work to develop our organization, which we began in 2018, has been successful. The goal has been to sharpen our commercial focus. Performance in the first three quarters of the year was better than for the previous year. I am particularly pleased about the improved net sales contribution per passenger and about the lower operating costs. The favourable trend from the second quarter continued during our peak season, which is the most important period of the year economically. The end of the financial year was adversely affected when the Finnish Seafarers’ Union decided to go on a solidarity strike.

“With ever increasing clarity, Viking Line has chosen to play an active role in developing sustainable maritime travel – an area that we have been a pioneer in for many years. In a time of active social discussion and rapid change, we want to meet our customers’ growing demand for sustainable services and greater demands for travel options in our region. During the year a sustainability strategy was approved. The work is strategic and targets customers, employees and the environment. As an Åland-based shipping company, we live off the sea and it is important to us to promote its well-being. We want to be a pioneer when it comes to implementing solutions that reduce our environmental impact.”

Sales and earnings

Consolidated sales of the Viking Line Group for the period January 1 – December 31, 2019 were 496.4 million euros (EUR 497.8 M for the period January 1 – December 31, 2018). Operating income totalled EUR 17.4 M (9.3).

Passenger-related revenue was EUR 448.4 M (450.3), while cargo revenue amounted to EUR 45.6 M (45.3). Net sales revenue was EUR 363.3 M (362.0).

Consolidated operating expenses decreased by 2.3 per cent to EUR 321.7 M (329.2). Bunker (vessel fuel) expenses decreased by 7.4 per cent to EUR 47.0 M (50.8).

During the fourth quarter, July 1–December 31, passenger volume fell compared to the same period in the previous year, with the result being lower sales and lower net sales revenue. The main reason for the lower net sales revenue was the Finnish Seafarers’ Union’s solidarity strike in November. As a result, operating income was EUR -0.1 M (1.6M).

Service and market trends

The Viking Line Group provides passenger and cargo carrier services using seven vessels on the northern Baltic Sea. The vessels served the same routes as in 2018.

The number of passengers on Viking Line’s vessels during the report period amounted to 6,300,480 (6,411,537). The Group had a total market share in its service area of approximately 31.9 per cent (32.4).

Viking Line’s cargo volume was 133,940 cargo units (128,549). The Group achieved a cargo market share of approximately 18.4 per cent (17.8). The market share for passenger cars was approximately 31.9 per cent (31.7).

Investments and financing

The Group’s investments amounted to EUR 29.9 M (15.9), of which EUR 23.6 M (4.3) primarily pertains to an advance payment for vessels under construction. The Group’s total investments represent 6.0 per cent of sales (3.2).

The construction of our new vessel, Viking Glory, is progressing in China. The vessel is expected to be placed in service in 2021. 

On December 31, 2019, the Group’s non-current interest-bearing liabilities totalled EUR 100.0 M (103.5). The equity/assets ratio was 50.7 per cent, compared to 49.4 per cent a year earlier.

At the end of December 2019, the Group’s cash and cash equivalents amounted to EUR 62.8 M (61.8). Unutilized credit lines in the Group totalled EUR 15.1 M on December 31, 2019 (15.1). Net cash flow from operating activities amounted to EUR 38.0 M (33.0). Net cash flow from investing activities was EUR -29.5 M (-13.5) and net cash flow from financing activities amounted to EUR -7.6 M (-25.7).

Risk factors

The market for cruises and ferry services in the Baltic Sea is stable but subject to tough competition. Political decisions may change Viking Line’s operating conditions, with potentially adverse consequences to its business operations. Åland’s special tax status, which makes duty- and tax-free sales possible on services to and from Åland, is nevertheless permanent. The European Commission’s guidelines for the promotion of seafaring, which makes the net salary system for shipboard employees possible, are in effect until further notice.

The Group’s business operations are dependent on functioning logistics and computer systems. Disruptions in traffic or data communications may have an adverse impact on the Group’s earnings. Viking Line endeavours to minimize the risk of lengthy unplanned service interruptions by means of continuous vessel maintenance, a well-developed safety and security system, training and regular drills. Risks in information management are minimized by developing appropriate security systems and alternative working methods as well as efforts to ensure the reliability of computer systems.

The Group’s vessels are recognized in the balance sheet at a carrying amount of EUR 266.0 M (281.2). The vessels have hull and machinery insurance plus increased value insurance totalling EUR 598.0 M (598.0). In addition, all vessels have strike/delay insurance, protection and indemnity (P&I) and Passenger Liability Regulation (PLR) insurance.

Fluctuations in bunker prices have a direct impact on the Group’s earnings. In order to offset the risk of higher bunker prices, the Group entered into fixed-price agreements related to a portion of its bunker consumption during 2018, 2019 and 2020.

The Group is also exposed to various financial risks, among them fluctuations in currency exchange rates. Revenue is generated in euros and Swedish kronor. Most of the operating inflow of cash and cash equivalents consists of euros. Purchase prices of goods for sale and bunker are affected by other currencies, especially the US dollar. The Group endeavours to maintain good liquidity in order to be prepared to deal with adverse changes in operational cash flow.

The Group is exposed to price risk related to shares that are classified as financial assets recognized at fair value through other comprehensive income. The value of the Group’s shareholding in the insurance company Försäkringsaktiebolaget Alandia is established on the basis of the present value of future cash flows. The cash flow projection is based on a number of estimates and judgements that have a substantial impact on present value.

Advance payments are related to vessels under construction and totalled EUR 49.5 M on December 31, 2019. These consist of advance payments in compliance with vessel construction (newbuilding) contracts, planning and monitoring expenses and capitalized borrowing expenses. In the event the vessel construction contract should be terminated, the Company has a bank guarantee of EUR 38.8 M plus interest as security for the advance payment made.

Sustainability report

The Sustainability Report for 2019 will be published. Information about Viking Line’s sustainability work is also available on Vikingline.com.

Organization and personnel

The average number of Group employees was 2,632 (2,671), of whom 1,986 (2,005) worked for the parent company. Land-based personnel totalled 594 (634) and shipboard personnel totalled 2,038 (2,037).

In addition to the Group’s own employees, Viking XPRS was crewed by an average of 245 (242) people employed by a staffing company.

At the end of 2019, the total number of Group employees was 2,810 (2,874), of which 2,198 (2,299) resided in Finland. The number residing in Sweden was 507 (453). There were 91 (111) employees residing in Estonia and 14 (11) in other countries.

Corporate governance statement

Viking Line applies the Finnish Corporate Governance Code, which was approved by the Securities Market Association. The Code is available on the Securities Market Association’s website, Cgfinland.fi. Viking Line complies with the Code in full. The Corporate Governance Statement for 2019 is published as part of Viking Line’s Annual Report. Information about Viking Line’s corporate governance is available on Vikingline.com.

Events after the balance sheet date

The Board of Directors of the Company is not aware of any major events after the balance sheet date that might influence the financial statements.

The board’s proposal on distribution of earnings

According to the balance sheet of Viking Line Abp on December 31, 2019, unrestricted equity totalled EUR 83,901,141.11.

The Board of Directors proposes to the Annual General Meeting that:

A dividend of EUR 0.45 per share be paid, totalling                 EUR    4,860,000.00

Remaining unrestricted equity                                                  EUR  79,041,141.11

No material changes in the Company’s financial position have occurred after the end of the financial year. In the assessment of the Board of Directors, the dividend is justifiable in light of the demands with respect to the size of the equity capital which are imposed by the nature, scope, financing and risks associated with the business.