Viking Line: A half-year that exceeds expectations

Viking Line Abp                    HALF YEAR FINANCIAL REPORT                          25.08.2023, 9.00 AM

A half-year that exceeds expectations 

JANUARY-JUNE 2023

(compared to January-June 2022)

• Sales amounted to EUR 226.3 M (EUR 199.8 M).
• Other operating revenue was EUR 8.9 M (EUR 8.3 M).
• Operating income totalled EUR 17.1 M (EUR -8.0 M).
• Net financial items were EUR -7.9 M (-4.7 M).
• Income before taxes totalled EUR 9.2 M (EUR -12.7 M).
• Income after taxes totalled EUR 6.9 M (EUR -9.8 M).

Outlook for the full financial year 2023

The Board of Directors has decided to revise its earnings outlook for 2023. Provided that energy prices remain at current levels, Viking Line’s Board of Directors believes that income before taxes will be significantly better than last year.

On June 21, 2023, the outlook was:

Provided that energy prices remain at current levels, Viking Line’s Board of Directors believes that income before taxes will be better than last year.

SECOND QUARTER 2023

(compared to second quarter 2022)

• Sales amounted to EUR 132.4 M (EUR 141.0 M).
• Other operating revenue was EUR 0.1 M (EUR 2.4 M).
• Operating income totalled EUR 18.0 M (EUR 10.1 M).
• Net financial items were EUR -4.4 M (EUR -2.5 M).
• Income before taxes totalled EUR 13.6 M (EUR 7.6 M).
• Income after taxes totalled EUR 10.6 M (EUR 6.3 M).

COMMENTS FROM PRESIDENT AND CEO JAN HANSES

Results for the first half of the year exceeded expectations and give cause for an improved full-year outlook. Passenger and cargo volumes continued to rise, despite a smaller number of vessels, while the planned price levels were reached. Bunker (vessel oil) prices have gradually fallen but are still very high relative to before the pandemic and Russia’s war of aggression against Ukraine.

On January 17, Rosella was sold and delivered to a Greek buyer. The capital gain from the sale boosted earnings for the first half of the year. In March 2023, Viking XPRS was reflagged to a Finnish flag. As a result, it was possible to transfer staff onboard Rosella to the company’s other vessels, while restructuring negotiations were conducted in order to adapt the land-based organization to the situation after the sale of Viking Line’s vessels. Despite these measures, staff performance has been excellent and contributed to half-year earnings.

For Viking Line, traffic on the short-haul route between Mariehamn and Kapellskär ended with the sale of Rosella. We see that some passengers on this route have chosen to sail on our other vessels from Stockholm to Åland. Starting in 2024, our traffic will fall under the EU Emissions Trading System, which means a cost will be imposed on us that we can only partly offset in the medium term through continued energy efficiency work. Fossil-free fuels are not available in a quantity and at prices that are economically viable. The introduction of a temporary island exemption from the EU Emissions Trading System for traffic between Finland and Åland is thus well justified since the transition to fossil-free fuels is not determined by the cost of emissions rights but by the supply of alternative fossil-free fuels. We do not intend to lower our ambitions to reduce emissions from our traffic because the introduction of the island exemption. On the contrary, we will use the cost savings for the continued work aimed at transitioning to fossil-free fuels and increasing energy efficiency.

During the first six months of the year, nearly 2.2 million passengers sailed with Viking Line’s vessels. Occupancy rates have been good on all the vessels. On the route between Turku, Åland and Stockholm, travel was intense on Viking Grace and the new Viking Glory. Market share for the first six months was over 73%. To sum up, I can note that the first six months of 2023 were very strong, even excluding the income effect of the sale of Rosella.

We are really pleased that we have now also been able to announce our plans to partner with Gotlandsbolaget, for which we see great potential.

I would like to extend my warm thanks to our customers and partners for their faith and good collaboration. I would also like to give a big thank you to our engaged staff, who contributed to our half-year earnings with their good work.

KEY RATIOS, SUMMARY

SERVICE AND MARKET

During the first half of the year, the Viking Line Group provided passenger and cargo carrier services using five vessels in the northern Baltic Sea and the Gulf of Finland.

Viking Grace was dry-docked during the period January 16 to February 12. During this time, it was replaced by Viking Cinderella on the Turku-Mariehamn/Långnäs-Stockholm route. After that, Viking Cinderella resumed its regular day cruise service between Stockholm and Mariehamn.

Rosella sailed 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 the vessel’s delisting from Estonia’s register of bareboat charterers and entry in the Åland Register of Ships on March 6. The vessel now sails under the Finnish flag.  

Last year, on March 1, 2022, Viking Glory was launched on the Turku-Mariehamn/Långnäs-Stockholm route, since which time it serves in tandem with Viking Grace. Amorella ceased operating the same route on February 28, 2022.

During the comparative period, Viking Cinderella served the Turku-Mariehamn/Långnäs-Stockholm route from January 17 to February 23, 2022, after which time it resumed its regular day cruise service between Stockholm and Mariehamn on February 24.

During the first half of last year, Viking Cinderella, Viking XPRS, Gabriella and Rosella were dry-docked.

The total number of passengers on the Group’s vessels during the report period was 2,185,843 (1,875,706). The Group had a total market share in its service area of approximately 34.8% (35.4%).

Market demand for travel since the beginning of the year has been significantly higher compared to the same period last year, which was affected by pandemic restrictions.

The Group’s total cargo volume was 64,872 cargo units (59,522). The Group’s share of the cargo market was approximately 16.9% (14.5%). Demand for cargo in our service area during the period was high but characterized by great weekly variations, and the prevailing situation in Europe makes it especially sensitive. Viking Line increased its cargo market share under these conditions.

The market share for passenger cars was approximately 27.3% (29.4%).

SALES AND EARNINGS FOR JANUARY – JUNE 2023

Consolidated sales increased 13.3% to EUR 226.3 M during the period January 1– June 30, 2023 (EUR 199.8 M January 1–June 30, 2022). Operating income totalled EUR 17.1 M (EUR -8.0 M). During the period, Rosella was sold, which had a positive income effect of EUR 8.6 M.

Passenger-related revenue increased 14.7% to EUR 201.1 M (EUR 175.2 M), while cargo sales were EUR 23.6 M (EUR 23.2 M) and other operating revenue was EUR 1.6 M (EUR 1.4 M). The sales contribution was EUR 172.4 M (EUR 151.7 M).

Operating expenses decreased 3.0% to EUR 150.7 M (EUR 155.4 M). Salary and other employment benefit expenses increased 5.4% or EUR 2.7 M, while other operating expenses decreased 7.1% or EUR 7.4 M. The decrease in operating expenses is due to lower fuel costs, which decreased 27.5% or EUR 11.7 M.

In January and February 2022, the Group received aid for public service obligations from Traficom, the Finnish Transport and Communications Agency, for the Group’s vessels on the Turku–Mariehamn/Långnäs–Stockholm and Mariehamn-Kapellskär routes. In June 2022, the Group received EUR 2.1 M in State aid which consists of aid for uncovered fixed costs. This aid is recognized as State aid under other operating revenue.

SALES AND EARNINGS FOR THE SECOND QUARTER 2023

Consolidated sales decreased 6.1% to EUR 132.4 M during the period April 1– June 30, 2023 (EUR 141.0 M April 1–June 30, 2022). Operating income totalled EUR 18.0 M (EUR 10.1 M).

Passenger-related revenue decreased 5.7% to EUR 120.7 M (EUR 128.0 M), while cargo-related revenue was EUR 10.9 M (EUR 12.3 M) and other revenue was EUR 0.8 M (EUR 0.7 M). The sales contribution was EUR 101.1 M (EUR 106.4 M). Operating expenses decreased 16.7% to EUR 76.4 M (EUR 91.8 M).

Salary and other employment benefit expenses decreased 3.3% or EUR 1.0 M while operating expenses decreased 23.1% or EUR 14.3 M, with fuel costs decreasing 47.6% or EUR 12.4 M.

INVESTMENTS AND FINANCE

The Group’s investments for the period January 1 to June 30, 2023, amounted to EUR 7.7 M (EUR 12.7 M). The Group’s total investments represent 3.4% of sales (6.4%). Most are attributable to the dry-docking of Viking Grace and cabin upgrades on both Gabriella and Cinderella.

The Group’s long-term interest-bearing liabilities on June 30, 2023, totalled EUR 168.5 M (EUR 227.3 M).

The debt/equity ratio was 47.6% compared to 40.2% for the same period in 2022.

The Group’s cash and cash equivalents at the end of June totalled EUR 97.7 M (EUR 103.6 M). Unutilized credit lines in the Group totalled EUR 0.1 M (EUR 15.1 M).

Net cash flow from operating activities was EUR 30.7 M (EUR 13.3 M). Net cash flow from investing activities was EUR 4.5 M (EUR -11.1 M) and net cash flow from financing activities was EUR -26.6 M (EUR -13.2 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.

ORGANIZATION AND PERSONNEL

The average number of employees in the Group was 2,138 (2,035), 1,611 (1,547) of whom worked in the parent company. Land-based personnel totalled 469 (434) and shipboard personnel totalled 1,669 (1,601). In addition to the Group’s own employees, Viking XPRS was crewed by an average of 65 (166) people employed by a staffing company. Since the reflagging of the vessel to the Finnish flag on March 6, 2023, the vessel is staffed with Viking Line employees.

During the winter, the company held restructuring negotiations with Finnish land-based staff and co-determination negotiations with Swedish land-based staff on account of the reduction in the company’s fleet. Costs have had to be adjusted as a result.

During the comparative period, some shipboard and land-based staff were also made redundant.

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 since Viking Line’s financial statements for the financial year 2022 were published.

As of June 30, 2023, the Group had no fixed-price agreements for bunker purchases or equivalent derivative contracts, but the company has an agreement for liquefied natural gas (LNG) deliveries in effect until September 2024. Rising market interest rates have a negative impact on net financial items. Some 78% of the Group’s credits have variable interest rates, while 22% have fixed interest rates.

OUTLOOK FOR THE FINANCIAL YEAR 2023

The Board of Directors has decided to revise its earnings outlook for 2023. Provided that energy prices remain at current levels, Viking Line’s Board of Directors believes that income before taxes will be significantly better than last year.

On June 21, 2023, the outlook was:

Provided that energy prices remain at current levels, Viking Line’s Board of Directors believes that income before taxes will be better than last year.

EVENTS AFTER THE BALANCE SHEET DATE

On August 9, Viking Line together with Gotlandsbolaget announced that the companies intend to form a joint venture entrusted with the task of developing and providing cruises with

M/S Birka Stockholm between Stockholm-Mariehamn and Stockholm-Mariehamn-Visby.

Gotlandsbolaget acquired M/S Birka Stockholm in March 2023 for EUR 38 M and has now agreed to sell 50 per cent of the vessel to Viking Line for EUR 19 M. The aim is for service to be launched in spring 2024. The completion of this business transaction and the start-up of the new joint venture are contingent on the approval of the Swedish Competition Authority. On August 23, the Swedish Competition Authority announced that it has decided not to take any action on this concentration, which means the business transaction will proceed as planned.

The Board of Directors knows of no other significant events after the balance sheet date that could affect the Half-Year Report.

Mariehamn, August 24, 2023

VIKING LINE ABP

The Board of Directors



Jan Hanses
President and CEO

Financial information

The Board of Directors’ Half-Year Report was prepared in accordance with IFRS accounting standards and valuation principles. The accounting principles and measurement principles applied are the same as for the year-end financial statements for 2022. The figures have not been audited.

 Consolidated income statement by quarter

Consolidated statement of comprehensive income by quarter

Financial ratios and statistics

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 2023 

1.     Accounting principles

This Half-Year Report has been prepared in accordance with IFRS and consists of a summary of the financial statements for the period in accordance with IAS 34.

The Half-Year 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 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 IFRSs, 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 Half-Year Report was published.

However, the geopolitical situation with high energy prices affects the income statement and balance sheet. It is difficult at present to assess how the geopolitical situation will affect the Group, and it is equally difficult to determine how long energy prices will be high 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. The vessels’ residual values and estimated periods of use are examined yearly and adjusted if they deviate significantly from earlier values.

The Group’s shareholdings are recognized as financial assets at fair value through other comprehensive income and on the reporting date June 30 consist of a 17.5%   investment in Rederiaktiebolaget Eckerö. 

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, is affected by those judgements.

Based on the management’s judgements, there was no need to take any significant impairment losses.

3.     Risks and liquidity

The Group’s cash and cash equivalents at the end of June totalled EUR 97.7 M (EUR 103.6 M). Unutilized credit lines in the Group totalled EUR 0.1 M as of June 30, 2023 (EUR 15.1 M ). Net cash flow from operating activities was EUR 30.7 M (EUR 13.3 M). Net cash flow from investing activities was EUR 4.5 M (EUR -11.1 M) and net cash flow from financing activities amounted to EUR -26.6 M (EUR -13.2 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.  

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. As of June 30, 2023, the Group had no fixed-price agreements for bunker purchases or equivalent derivative contracts.

As of June 30, 2023, the Group’s interest-bearing liabilities totalled EUR 205.2 M, 78% of which have variable rates. 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.

Future cash flows related to financial liabilities as of June 30, 2023:

4.     Segment information

Consolidated revenue increased 13.3% and passenger-related revenue increased 14.7%.

5.     Other operating revenue

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

During the comparative period, the Group received aid for public service obligations from Traficom for the Group’s vessels on the Turku–Mariehamn/Långnäs–Stockholm and Mariehamn-Kapellskär routes. The company also received aid for uncovered fixed costs of EUR 2.1 M. This aid is recognized as State aid under other operating revenue.

6.     Compensation to employees

During the period, Viking XPRS was reflagged from an Estonian to a Finnish flag. Since the reflagging, the vessel is staffed by Viking Line personnel. When the vessel was under an Estonian flag, these services were purchased from a staffing agency. 

During the comparative period, some of the onboard and land-based staff were also made redundant.

7.     Depreciation

8. Other operating expenses

9.     Financial expenses

10. Income taxes

As of June 30, 2023, the Group recognized net deferred tax liabilities of EUR 37.0 M, EUR 37.8 M of which is deferred tax liabilities and EUR 0.8 M is deferred tax assets. A loss recognized in taxation for the financial year 2020 can be deducted from taxable income over 10 years. Based on the management’s estimates and judgements, Viking Line expects that it will be possible to use the loss against future taxable income.