- Finnlines in 2008
- CEO’s review
- Business concept, values and goals
- Business environment
- Shipping and Sea Transport Services
Operationally, the year was twofold: During the first half of the year, the increase in cargo volumes and the rising fuel oil price reached their peak in the summer. In early autumn, the financial crisis spread quickly from the US to the global real economy. Due to the sharp decline in foreign trade, cargo volumes dropped dramatically towards the end of the year. However, the cargo volumes of the entire year (measured in cargo units) increased by 2.9 per cent. The number of passengers transported on the company's ships during the year rose by 21 per cent.
Despite the increase in revenue, the financial statements for the fiscal year show a loss before taxes, which is due to the dramatic drop in the cargo volumes towards the end of the year and also due to non-recurring costs of port operations relating to port moves. In addition, the company's extensive investment programme added depreciations and interest expenses.
In Helsinki, the company’s port operations from the West and North Harbours were concentrated to the new Vuosaari Harbour. The company’s investments in the new harbour, including non-recurring items related to the move, totalled nearly EUR 100 million, of which nearly EUR 50 million in 2008. The new modern harbour will enable the company to provide faster and more efficient services to its customers.
In April, the Group companies bought four ro-ro vessels, which had been on time-charter, at a price of EUR 121 million.
During the whole year, the growth in unitized sea transports via Finnish ports continuously paced down with imports growing constantly more than exports, thus increasing the imbalance in the traffic. This was partly caused by the restructuring of the Finnish forest industry.
In the last quarter, volumes dropped sharply, as the economic crisis decreased transports of investment goods, raw materials and paper dramatically. This negative trend impacted all traffics in the Shipping and Sea Transports as well as the Port Services segment.
For the full year, the Finnish sea transports of unitized goods were at the same level as in 2007, but declined in Q4 by 9 per cent compared to the year before. Similarly, the full year trailer and lorry volumes between Southern Sweden and Germany stayed at the 2007 level, but dropped by 11 per cent during Q4.
The passenger traffic between Finland and Germany increased by 2.9 per cent and decreased by 0.2 per cent between Finland and Sweden during 2008.
Bunker prices increased heavily during the first half of the year and reached their peak in mid-July, when the price for the Rotterdam LS180 used as a reference was 100 per cent higher than the 2007 average price at 818 USD/ton. During the second half of the year, bunker prices decreased substantially and at the end of the year the reference quotation stood at 228 USD/ton.
Finnlines is one of the largest European shipping companies specialising in liner cargo services. The Group’s operations are centred on sea transports in the Baltic Sea and North Sea areas and on providing port services mainly in Finland. Through its subsidiaries and sales offices, the Group has operations in eight North European countries and in Russia. The Group’s services are also offered throughout Europe via an extensive network of agents. There were no significant changes in the Group structure during the reporting period.
To improve the customer service, efficiency and business follow-up, different port operations were split into separate companies by de-merger of Finnsteve as of 1 January 2009. The new companies provide container, ro-ro and terminal services.
The Board of Directors of Finnlines Plc proposed to the AGM held on 15 April 2008, that no dividend be paid out for the fiscal year 2007 due to the sizeable investment in the five vessels already in operation, the commitments of the vessel renewal programme and the investments in the harbour.
The minority shareholders (more than 10 per cent of the shares) used their rights to require postponement of the handling of the closing of the books and the discharge of the Board to a continued meeting. The AGM also decided to postpone the Board of Directors' proposal for authorization to increase the share capital to the same meeting. The continued meeting was held on 20 May 2008.
The AGM decided that the company’s Board of Directors has seven members. Mr. Emanuele Grimaldi, Mr. Gianluca Grimaldi, Mr. Diego Pacella, Mr. Heikki Laine, Mr. Antti Pankakoski, Mr. Olav K. Rakkenes and Mr. Jon-Aksel Torgersen were unanimously re-elected. Finnlines’ Board of Directors elected Mr. Jon-Aksel Torgersen Chairman and Mr. Diego Pacella Vice Chairman of the Board. The firm of authorised public accountants Deloitte & Touche Oy was appointed the company’s auditors, with Mikael Leskinen, APA, as the principally responsible auditor.
In the Continued Annual General Meeting on 20 May 2008, Christer Antson, President and CEO, explained that Group contribution had been given, like in previous years, to Finnlines’ 100 per cent owned ship-owning companies, which had invested in new vessels or converted older vessels.
The Continued AGM approved, after voting, the financial statements and discharged the company’s officers from liability for the financial year 2007. Ilmarinen informed that it will demand a special audit in the company. The AGM decided, after voting, that the minimum dividend required by the minority (more than 10 per cent of shares) be paid. The total amount of dividends paid is EUR 180,216.40 i.e. EUR 0.00443 per share. The dividend record date was 23 May 2008 and the dividend payment date was 30 May 2008.
The Board of Directors was authorised to resolve on the issuance of shares. The company may, on the basis of the authorisation, issue new shares in one or several instalments, so that the aggregate maximum number of new shares will be 10,000,000 shares. The authorisation includes the right for direct issue of shares, in deviation from the shareholders' pre-emptive subscription right on the terms and conditions prescribed by law. The authorisation is valid until the next Annual General Meeting.
Helsinki’s cargo port operations were moved from the West and North Harbours to the new modern Vuosaari Harbour Centre, which was opened on schedule at the end of November. The Group’s total investments in new container cranes and terminal facilities, together with non-recurring expenses related to the move, are nearly EUR 100 million. In the eastern part of the Vuosaari Harbour, the Group’s port operator Finnsteve has an operating area of about 70 hectares for container, semitrailer and truck services. The area has 10 ro-ro berths and 750 metres of quay for container ships. Vehicles to and from Finnsteve's area pass through the sheltered 8-lane gate area. An online computer system controls and directs cargo units between the harbour gate and the ship.
In April, Finnlines bought MS Finnmill and MS Finnpulp and two other vessels, MS Finnkraft and MS Finnhawk, all of which were under time-charter in Finnlines traffic, at the total amount of EUR 121 million. This deal settled the litigation process relating to the purchase options of Finnpulp and Finnmill. Finnkraft and Finnhawk are currently sailing under the Finnish flag and Finnmill and Finnpulp under the Swedish flag.
The operations at the terminals of Lübecker Hafengesellschaft (LHG) in Lübeck harbours suffered from actions of the stevedoring workers' union early in the year. The union protested against the planned privatisation of LHG.
The cargo volumes transported during the year totalled approximately 814,000 (791,000 in 2007) units (lorries, trailers), 117,000 (99,000) cars (not including cars of the passengers) and 2,901,000 (2,576,000) tonnes of freight not possible to measure by the unit. In addition, some 612,000 (504,000) passengers (including freight-related passengers) were transported in 2008.
The Finnlines Group recorded revenue totalling EUR 735.7 (685.5 in 2007) million. Shipping and Sea Transport Services generated revenue amounting to EUR 643.7 (585.1) million and Port Operations EUR 122.1 (133.2) million. Other income from operations amounted to EUR 2.4 (15.3) million. The main part (EUR 12.3 million) of the 2007 amount was generated by the sales gain of the two vessels sold during the third quarter of 2007.
Operating profit was EUR 35.4 (68.8) million. The decrease in operating profit of Shipping and Sea Transport Services resulted mainly from the sharp drop in transported volumes in the last quarter of the year and from the fact that the comparison figure contains sales gain of two vessels totalling EUR 12.3 million.
The profitability of the Group's Port Operations was weak. Operating loss was EUR -12.4 (7.2) million. The port operations in Oslo (Norsteve) moved to a new location, which caused losses in income and non-recurring costs. The transfer of Finnsteve's Helsinki operations to the Vuosaari Harbour caused non-recurring costs of over EUR 5 million. In addition, due to a changed competitive situation, goodwill write-offs of EUR 3.0 million were made to Finnsteve's operations in Kotka. The financial performance of Port Operations was also affected negatively by the considerable decrease in cargo volumes during the last quarter of the year.
Financial income was EUR 3.4 (5.3) million and financial expenses totalled EUR -42.0 (-34.0) million. Loss before taxes was EUR -3.2 (40.1). Return on equity (ROE) was 0.2 (8.0) per cent and return on investment (ROI) was 2.9 (6.9) per cent The most important business and share related key indicators are presented in the notes to the accounts on page 72.
The Group's investments totalled EUR 236.3 (391.3) million, consisting mainly of the down-payments for the six ro-ro vessels on order, the purchased four ro-ro vessels and investments in the Vuosaari Harbour. Interest-bearing net debt amounted to EUR 900.1 (729.3) million. The payments in 2009 for the Jinling newbuilding project, totalling approximately EUR 8 million, are due during the second half of the year. At the year-end, 57 per cent of the loans were fixed rate and the rest were floating rate loans. The duration (average interest-rate period) of the debt portfolio was approximately 58 months. The Group’s financing agreements include customary covenants relating to the equity ratio and operations. On 31 December 2008, the granted but non-utilised credit facilities totalled EUR 203 million. The equity ratio calculated from the balance sheet was 28.5 (31.1) per cent. Gearing was 205.5 (167.4) per cent
The aim of Finnlines' research and development work is to find and introduce new practical solutions and operating methods, which enable the company to better and more cost-efficiently meet customer needs.
The Vuosaari Harbour was opened at the end of November. In addition to an increased capacity, it will enable us to provide faster and more efficient port and terminal services to our customers. A great deal of effort was put into the planning of the operations in the harbour area, which will ensure efficient, smooth and safe cargo handling in the harbour, not forgetting passengers.
Finnlines introduced new ro-pax vessels to the company's fleet during 2006–2007. As a result, sailing schedules and operational models on the company's main routes were altered. The aim is to further improve the company's competitiveness and service when the new ro-ro vessels join the fleet in 2010–2011.
The company's operative and customer management systems are under ongoing development and improvement. The new computer programs are aimed at enhancing efficiency and improving sales and day-to-day customer service.
Development work is an integral part of the company's day-to-day activities. The Group has an IT Department consisting of 37 employees, which is responsible for the system development and maintenance.
Research and development costs are not significant, considering the extent of the company's operations.
The Group employed an average of 2,436 (2,335) people during the period, consisting of 1,464 (1,470) employees on shore and 972 (865) people at sea.
The Company’s registered share capital on 31 December 2008 was EUR 81,383,916 divided into 40,691,958 shares. A total of 8.6 (9.4) million Finnlines shares were traded on the NASDAQ OMX Helsinki Ltd during the reporting period. The market capitalisation of the Company’s stock at the end of December was EUR 262.5 (620.6) million. Earnings per share (EPS) during the reporting period were EUR 0.01 (0.83). Shareholders’ equity per share was EUR 10.72 (10.67). At the end of the year, Grimaldi Group's holding and share of votes in Finnlines was 64.90 per cent.
The most significant operative risk in shipping is involved in vessel and sea safety. Accidents at sea may have consequences for humans, a harmful impact on the environment and may lead to financial losses. The ships in Finnlines' service have safety management systems which are audited and improved through appropriate training and regular safety drills. Cargo handling practices play an important role in ensuring safe sea traffic. In the past year, the company reassessed its cargo handling practices, updated the instructions and stepped up the monitoring of cargo handling and cargo securing in ports.
Well-functioning information systems and data security are of vital importance in all situations. Failures in information systems cause extra work, disturbances in service, loss of potential cargoes, data security risk and erosion of customer confidence. The company’s operative information systems are under ongoing development and improvement. The technical failure prevention systems have been built on effective exploitation of modern technology. In addition, for stevedoring operations, operating models have been created in case of major failures in the IT systems. Technological data security solutions will prevent third parties from accessing Finnlines' internal and customers' data.
In addition to the 6-vessel investment programme announced earlier, Finnlines purchased four ro-ro vessels at the price of EUR 121 million in April. The deal was financed with long-term bank loans. The company has invested and will invest from 2003 to 2011 over one billion euros in the fleet and ports. Due to the investment programme, the net interest-bearing debt has increased and will continue to do so. This is also reflected on the consolidated equity ratio. More detailed information on Finnlines' risks can be found in financial statements included in the company's Annual Report.
The risk management procedures of the Group are more widely presented on the Group’s Internet pages under Corporate Governance.
The arbitration proceedings between the owners of MS Finnmill and MS Finnpulp and Finnlines Plc were withdrawn in April. The main dispute concerned the validity and terms of the purchase options of the vessels. The parties settled the case amicably and in April Finnlines bought MS Finnmill and MS Finnpulp and two other time chartered ro-ro vessels, MS Finncraft and MS Finnhawk. The total price for the deal was EUR 121 million.
MS Finnbirch sank in November 2006 in the Southern Baltic. She was under time-charter to Finnlines from her owners Lindholm Shipping, Sweden. Finnlines has an adequate insurance coverage in the event Finnlines would be found liable towards the cargo interest.
In June, Finnlines Plc received a request for a statement of reply from the County Administrative Board of Southern Finland to the application made by Mutual Pension Insurance Company Ilmarinen for conducting a special audit of accounts. In its application letter to the County Administrative Board of Southernern Finland Ilmarinen demanded that the County Administrative Board orders a special audit to be conducted in Finnlines Plc’s administration and accounting for the period from 1 January to 31 December 2007, as prescribed in the Companies Act (21.7.2006/624) 7:7 §. In September, Finnlines Plc submitted its reply by the given time limit.
Mutual Pension Insurance Company Ilmarinen initiated action against Finnlines Plc in the Helsinki District Court. Ilmari-nen objects to the decision of Finnlines’ Annual General Meeting held on 20 May 2008 to distribute EUR 180,216.39 as a minimum dividend. Ilmarinen demands primarily that the minimum dividend be altered to EUR 17,181,000. Secondly Ilmarinen demands that the resolution taken by the AGM on 20 May 2008 to be declared null and void. Additionally, Ilmarinen demands that Finnlines pays its legal expenses.
Finnlines considers the action groundless. The company considers that the measures taken have had commercial grounds and that it has in all respects acted in the best interests of the company and its shareholders. Finnlines prepared a detailed response and submitted it to the Helsinki District Court within the given time limit.
Mr. Tomas Lindholm, attorney at law from Roschier Attorneys Ltd., acts as legal adviser to Finnlines.
On the day of signing the financial statements, the County Administrative Board of Southern Finland had not yet released its resolution on the special audit of accounts and the Helsinki District Court had not yet started the hearing of the case initiated by Mutual Pension Insurance Company Ilmarinen.
Finnlines places high priority on the environmental aspects of its operations. The company seeks to continuously improve its environmental programmes while considering the requirements of sustainable development, the needs of customers and partners, as well as the demands imposed by society. Finnlines focuses on optimising its transports and routes to achieve the highest possible utilisation on both southbound and northbound voyages, which minimises environmental stress per transported cargo unit.
The company is continuously looking for ways to reduce fuel and energy consumption. Fuel consumption depends on many factors: route, amount of cargo, speed and engine power. Schedule planning is one tool to reduce fuel consumption. An electronic operation optimising tool has been trialled on one vessel. The six new ships to be delivered from China in 2010–2011 will be fitted with a rudder/propeller combination technology that is designed to achieve significant reductions in fuel consumption.
All of Finnlines' ro-pax ships have been incorporated into the environmental certificate issued by LRQA (Lloyd's Register Quality Assurance). Certification complies with the requirements of the ISO 14 001 standard. In 2008, three ro-pax ships and ship management functions were audited by LRQA. Most of the other ships in Finnlines’ service and port operators also have the ISO 14 001 certificate.
All vessels have been certified in accordance with the International Safety Management Code. All ships also comply with the requirements of the International Ship and Port Facility Security Code (ISPS). The safety management system is developed through crew training and internal audits. Safety drills are held together with the authorities annually.
Ship crews first practised maneuvering on the new Vuosaari fairway with a simulator, and in late summer and early autumn, before the new harbour was opened, the Star class vessels made test runs on the new route.
In its Annual Report, Finnlines publishes a summary of environmental and safety issues.
The overall economic development in Europe and in the whole world has rapidly deteriorated and casts uncertainty over our business environment. The sharp drop in cargo volumes started in the last quarter of 2008, will burden the company's revenues and financial performance at least during the first half of 2009. Due to the fleet renewal programme, ship conversions and investments in harbours, Finnlines' depreciations are expected to continue to rise from the 2008 level. However, interest expenses are likely to fall due to declining market interest rates.
Finnlines will take a number of actions to respond to the difficult market conditions. The actions include adjustment of the capacity to the demand where possible, cost-saving initiatives, personnel adjustments, and even divesting non-core business.
The parent company’s non-restricted equity on 31 December, 2008 is EUR 92,747,356.47 of which net profit from the financial year is EUR 0.00. The Board of Directors will propose to the Annual General Meeting that no dividend be paid out for 2008 due to the weak financial performance, poor economic prospects in the immediate future and the ongoing extensive investment programme.
Finnlines Plc’s Annual General Meeting will be held from 12.30 pm on Wednesday, 15 April 2009 at the Hotel SAS Radisson Royal, Kamppi, Runeberginkatu 2, Helsinki, Finland.