Eimskipafélag Íslands hf.
Half Year financial report
EIMSKIP: Second quarter 2017 EBITDA in line with expectations
EBITDA forecast for the year is unchanged, EUR 57 to 63 million
Revenue EUR 173.1 million, up by EUR 47.0 million or 37.2% from Q2 2016
Volume in liner services up 3.5%; revenue up EUR 21.5 million or 22.4%
Volume in forwarding services up 39.6%; revenue up EUR 25.4 million or 84.3%, of which EUR 22.0 million came from new acquisitions
EBITDA EUR 16.7 million, up by EUR 0.5 million or 3.2% from Q2 2016
EUR 1.1 million increased expenses related to cargo imbalance in Iceland which will be offset by new container positioning fee in the second half
Net earnings EUR 4.9 million compared to EUR 8.8 million in Q2 2016
Mainly reflecting currency exchange movements of EUR 3.2 million
Equity ratio 54.5% and net debt EUR 77.8 million at the end of June
EBITDA forecast for the year 2017 unchanged, EBITDA of EUR 57 to 63 million
Gylfi Sigfússon, President and CEO
“Eimskip’s second quarter 2017 EBITDA results are in line with the company’s expectations. Revenue in the second quarter grew by EUR 47.0 million or 37.2% compared to the same period last year and amounted to EUR 173.1 million. Liner services revenue grew by 22.4% and forwarding services revenue grew 84.3%, mainly due to new acquisitions. Expenses of the quarter grew by EUR 46.4 million or 42.2% compared to the second quarter last year. Liner services expenses were up 27.9% and forwarding services expenses were 80.6% up. The increase of expenses in the liner services is explained by expansion of capacity in the sailing system, cost related to imbalance between Icelandic imports and exports and higher fuel cost. Also higher salary cost both related to strengthening of the ISK and general wage and activity increase. The increase of expenses in the forwarding services is mainly due to addition of new forwarding companies to the group and growing freight rates from the deep sea lines.
In February Eimskip increased the capacity of its liner system by 7-11% by changing routes and adding one vessel, increasing operational cost of the system and it takes time and effort to fill up the additional capacity with new revenues. Imbalance between Icelandic imports and exports has increased, where imported volumes for the first six months grew substantially, mostly affected by import of vehicles and building material, at the same time as export has decreased, mostly affected by the fishermen strike in the first quarter. This imbalance creates additional cost of labor overtime in the port operation and cost of chartering in vessels for repositioning of containers and transport of excess cargo. Eimskip has reacted to this additional cost by increasing efficiency in the port operation going forward and by implementing on 1 June 2017 a Container Positioning Charge (CPC) in order to offset the cost.
EBITDA was EUR 16.7 million in the quarter compared to EUR 16.2 million in the second quarter last year, but the quarter was affected by EUR 1.1 million cost related to imbalance in the liner system.
The liner services revenue was EUR 117.5 million in the second quarter, up by EUR 21.5 million or 22.4%. The liner volume grew by 3.5% compared to the same period last year. Liner EBITDA for the quarter was EUR 11.8 million and decreased by EUR 1.1 million or 8.7%, affected by higher cost of EUR 2.1 million related to increased capacity in the liner system and imbalance between imports and exports.
Forwarding services were performing well in the quarter, with volume growth of 39.6% and revenue amounting to EUR 55.6 million, up by EUR 25.4 million or 84.3%. Forwarding acquisitions accounted for 70.3% of the forwarding revenue growth and 14.0% came from existing forwarding operations. EBITDA from forwarding was EUR 4.9 million and increased by EUR 1.7 million or 50.1%, of which 40.0% came from new acquisitions and 10.1% from organic growth.
The quarter’s result was affected by currency exchange fluctuations. Eimskip’s income statement is relatively well hedged but the balance sheet is more subject to currency changes. Weakening of the USD against the EUR of about 6.5% and strengthening of the ISK of about 3.7% against the EUR in the second quarter resulted in a negative currency exchange movements of EUR 2.0 million. Compared to EUR 1.2 million positive currency exchange movements in the second quarter 2016, the negative year-on-year difference was EUR 3.2 million. Net earnings for the quarter amounted to EUR 4.9 million compared to EUR 8.8 million in the second quarter last year, mostly resulting from the above mentioned currency exchange fluctuations.
The company’s revenue for the first six months amounted to EUR 320.0 million compared to EUR 239.4 million, for the same period last year. EBITDA for the first six months was EUR 26.0 million, up by EUR 0.2 million from last year’s EBITDA. Taking into account non-recurring items in the first quarter, adjusted EBITDA for the first six months 2017 was up EUR 2.3 million and the adjusted EBITDA growth 9.7% compared to last year’s EBITDA. The six months EBITDA was also negatively affected by EUR 3.8 million of additional expenses due to the changed sailing system and the imbalance cost. Net earnings amounted to EUR 5.1 million compared to EUR 10.6 million for the first six months 2016. Transported volume in the liner services grew by 3.3% compared to the first six months last year and the forwarding volumes were up 34.3%.
In January 2017 Eimskip signed a contract with a shipyard in China to build two 2,150 TEU ice class Polar Code container vessels with delivery in 2019. The first contract payment of EUR 11.7 million was made in May.
In June, Eimskip acquired 75% of the freight forwarding company SHIP-LOG A/S headquartered in Århus in Denmark. The company has a strong niche position in the temperature controlled food and pharmaceutical cargo sector. The company’s annual revenue is approximately EUR 17 million with EBITDA margin of 6-7%.
Eimskip continues to work on organic growth and strategic accretive acquisitions to increase shareholder value. In February Eimskip changed its sailing system and added an additional vessel that combined increased capacity by 7-11%. The adding and adjusting of the sailing system increased expenses during the first half of the year by EUR 2.7 million. This investment in organic growth allows the company to be able to handle the substantial increase in imports to Iceland. The volume imbalance between imports and exports to and from Iceland caused congestion and inefficiency in the Sundahöfn terminal in Reykjavík. We have taken measures to control expenses and implemented the above mentioned container positioning surcharge (CPC) to offset the imbalance costs. The company is now well positioned to turn volume growth into increased profits in the second half.
The new acquisitions are performing well, are accretive and adding shareholder value to the group. The company’s strategy to grow by acquiring specialized forwarding companies has worked well. The EBITDA for the forwarding segment has increased substantially during the six month period for the last three years, from EUR 3.8 million for the first six months 2015 to EUR 9.0 million for the first six months 2017, a 136% increase. Integration of these acquisitions is in process, creating more powerful network and opportunities for growth through new commodities, new trade lanes, cross selling and synergies. With these acquisitions we have also achieved other goals by increasing our proportion of asset light EBITDA, generating higher return on capital and geographically diversifying revenues and EBITDA. The company continues to evaluate additional acquisition opportunities and vessel investments on an ongoing basis.
The EBITDA results for the first six months are in line with our expectations. July EBITDA results are strong and volumes for the first three weeks in August are on track. The EBITDA forecast for the year 2017 is unchanged at EUR 57 to 63 million.”
Gylfi Sigfússon, President and CEO, tel.: +354 525 7202
Hilmar Pétur Valgardsson, CFO, tel.: +354 525 7202
Erna Eiríksdóttir, Senior Manager of Investor Relations, tel.: +354 825 7220, email: email@example.com