Viking Line Abp — Audit Report / Information 2019

Feb 13, 2020

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

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.

Consolidated income statement

Oct 1, Oct 1, Jan 1, 2019- Jan 1, 2018-
2019- 2018–
EUR M Dec Dec Dec 31, 2019 Dec 31, 2018
31, 31,
2019 2018

SALES 115.6 119.8 496.4 497.8

Other operating revenue 0.2 0.1 0.4 0.3

Expenses
Goods and services 31.9 33.2 133.1 135.8
Salary and other employment 28.7 28.5 117.1 117.3
benefit expenses
Depreciation, amortization 6.1 5.9 24.6 23.8
and impairment losses
Other operating expenses 49.2 50.6 204.6 211.8
  115.9 118.2 479.4 488.8

OPERATING INCOME -0.1 1.6 17.4 9.3

Financial income 0.1 0.1 0.5 2.4
Financial expenses -0.3 -0.8 -4.3 -5.2

INCOME BEFORE TAXES -0.3 0.9 13.6 6.5

Income taxes 0.0 -0.2 -2.7 -1.0

INCOME FOR THE PERIOD -0.3 0.7 10.8 5.5

Income attributable to:
Parent company shareholders  -0.3 0.7 10.8 5.5

Earnings per share before and -0.03 0.06 1.00 0.51
after dilution, EUR

Consolidated statement of
comprehensive income

Oct 1, Oct 1, Jan 1, 2019- Jan 1, 2018-
2019- 2018–
EUR M Dec Dec Dec 31, 2019 Dec 31, 2018
31, 31,
2019 2018

INCOME FOR THE PERIOD -0.3 0.7 10.8 5.5

Items that may be
reclassified to the income
statement
Translation differences 0.5 0.2 -0.3 -0.8

Items that will not be
reclassified to the income
statement
Changes in the fair value of
financial assets at fair
value
through other comprehensive -3.9 4.1 -3.9 4.1
income

Other comprehensive income -3.4 4.2 -4.2 3.3

COMPREHENSIVE INCOME FOR THE -3.7 4.9 6.6 8.8
PERIOD

Comprehensive income
attributable to:
Parent company shareholders  -3.7 4.9 6.6 8.8

Consolidated balance sheet

EUR M     Dec 31, 2019 Dec 31, 2018

ASSETS

Non-current assets
Intangible assets     3.3 3.2
Land     0.6 0.6
Buildings and structures     7.3 7.7
Renovation costs for rented     2.2 2.5
properties
Vessels     266.0 281.2
Machinery and equipment     3.9 4.9
Right-of-use assets     5.2 -
Advance payments     49.5 25.9
Financial assets at fair
value through
other comprehensive income     28.1 32.0
Total non-current assets     366.0 358.0

Current assets
Inventories     16.9 16.3
Income tax assets     0.4 0.4
Trade and other receivables     28.0 30.7
Cash and cash equivalents     62.8 61.8
Total current assets     108.1 109.2

TOTAL ASSETS     474.0 467.2

EQUITY AND LIABILITIES

Equity
Share capital     1.8 1.8
Reserves     1.9 5.8
Translation differences     -2.5 -2.3
Retained earnings     233.9 225.3
Equity attributable to parent     235.1 230.7
company shareholders

Total equity     235.1 230.7

Non-current liabilities
Deferred tax liabilities     37.7 37.5
Interest-bearing liabilities     100.0 103.5
Lease liabilities     3.6 -
Total non-current liabilities     141.3 141.0

Current liabilities
Interest-bearing liabilities     23.5 23.5
Lease liabilities     1.7 -
Income tax liabilities     2.1 0.3
Trade and other payables     70.3 71.6
Total current liabilities     97.6 95.5

Total liabilities     238.9 236.5

TOTAL EQUITY AND LIABILITIES     474.0 467.2

Consolidated cash flow
statement

Jan 1, 2019- Jan 1, 2018-
EUR M     Dec 31, 2019 Dec 31, 2018

OPERATING ACTIVITIES

Income for the period     10.8 5.5
Adjustments
  Depreciation, amortization     24.6 23.8
and impairment losses
  Capital gains/losses from     0.0 -0.1
non-current assets
  Other items not included in     0.4 0.9
cash flow
  Interest expenses and other     3.8 4.0
financial expenses
  Interest income and other     -0.1 -0.1
financial income
  Dividend income     -0.4 -2.3
  Income taxes     2.7 1.0

Change in working capital
  Change in trade and other     2.7 3.6
receivables
  Change in inventories     -0.6 1.0
  Change in trade and other     -1.2 -1.1
payables

Interest paid     -3.4 -3.6
Financial expenses paid     -0.5 -0.6
Interest received     0.0 0.0
Financial income received     0.1 0.1
Taxes paid     -0.8 1.0

NET CASH FLOW FROM OPERATING     38.0 33.0
ACTIVITIES

INVESTING ACTIVITIES
Investments in vessels     -5.4 -9.2
Investments in other     -1.0 -2.3
intangible and tangible
assets
Advance payments     -23.6 -4.3
Investments in financial
assets recognized at fair
value
through other comprehensive     0.0 0.0
income
Divestments of other     0.1 0.1
intangible and tangible
assets
Divestments of financial
assets recognized at fair
value
through other comprehensive     - 0.0
income
Dividends received     0.4 2.3

NET CASH FLOW FROM INVESTING     -29.5 -13.5
ACTIVITIES

FINANCING ACTIVITIES
Increase in non-current     20.0 -
liabilities
Principal payments, non     -23.5 -23.5
-current liabilities
Depreciation of lease     -1.9 -
liabilities
Dividends paid     -2.2 -2.2

NET CASH FLOW FROM FINANCING     -7.6 -25.7
ACTIVITIES

CHANGE IN CASH AND CASH     0.9 -6.2
EQUIVALENTS
Cash and cash equivalents at     61.8 68.0
the beginning of the period

CASH AND CASH EQUIVALENTS AT   62.8 61.8
THE END OF THE PERIOD

Statement of changes in
consolidated equity

Equity
attributable
to parent
company
shareholders

                       Share            Translation  Retained   Total

EUR M capital Reserves differences earnings equity

EQUITY, JAN 1, 2019 1.8 5.8 -2.3 225.3 230.7

Income for the period       10.8 10.8
Translation differences   0.0 -0.2 -0.1 -0.3
Remeasurement of
financial assets
recognized at
fair value through   -3.9     -3.9
other comprehensive
income
Comprehensive income - -3.9 -0.2 10.7 6.6
for the period

Dividend to       -2.2 -2.2
shareholders
Transactions with - - - -2.2 -2.2
owners of the parent
company

EQUITY, DEC 31, 2019 1.8 1.9 -2.5 233.9 235.1

Equity
attributable
to parent
company
shareholders

                       Share            Translation  Retained   Total

EUR M capital Reserves differences earnings equity

EQUITY, JAN 1, 2018 1.8 1.7 -1.7 222.2 224.1

Income for the period       5.5 5.5
Translation differences   0.0 -0.6 -0.2 -0.8
Divestments of
financial assets at
fair value
through other   0.0   0.0 0.0
comprehensive income
Remeasurement of
financial assets
recognized at
fair value through   4.1     4.1
other comprehensive
income
Comprehensive income - 4.1 -0.6 5.3 8.8
for the period

Dividend to       -2.2 -2.2
shareholders
Transactions with - - - -2.2 -2.2
owners of the parent
company

EQUITY, DEC 31, 2018 1.8 5.8 -2.3 225.3 230.7

Quarterly consolidated income
statement

2019 2019 2019 2019
EUR M Q4 Q3 Q2 Q1

SALES 115.6 153.8 131.1 95.8

Other operating revenue 0.2 0.0 0.1 0.1

Expenses
Goods and services 31.9 40.0 35.5 25.7
Salary and other employment 28.7 29.5 30.7 28.2
benefit expenses
Depreciation, amortization and 6.1 6.0 6.1 6.3
impairment losses
Other operating expenses 49.2 52.1 53.5 49.9
  115.9 127.6 125.7 110.1

OPERATING INCOME -0.1 26.2 5.4 -14.2

Financial income 0.1 0.0 0.4 0.0
Financial expenses -0.3 -1.3 -1.4 -1.2

INCOME BEFORE TAXES -0.3 24.9 4.4 -15.4

Income taxes 0.0 -5.0 -0.8 3.1

INCOME FOR THE PERIOD -0.3 19.9 3.6 -12.3

Income attributable to:
Parent company shareholders  -0.3 19.9 3.6 -12.3

Earnings per share before and -0.03 1.84 0.33 -1.14
after dilution, EUR

Quarterly consolidated
statement of
comprehensive income

2019 2019 2019 2019
EUR M Q4 Q3 Q2 Q1

INCOME FOR THE PERIOD -0.3 19.9 3.6 -12.3

Items that may be reclassified
to the income statement
Translation differences 0.5 -0.3 -0.3 -0.3

Items that will not be
reclassified to the income
statement
Changes in the fair value of
financial assets recognized
at
fair value through other -3.9 - - -
comprehensive income

Other comprehensive income -3.4 -0.3 -0.3 -0.3

COMPREHENSIVE INCOME FOR THE -3.7 19.6 3.3 -12.6
PERIOD

Comprehensive income
attributable to:
Parent company shareholders  -3.7 19.6 3.3 -12.6

Segment information, Viking Line Group

Jan 1, 2019- Jan 1, 2018-
EUR M   Dec 31, 2019 Dec 31, 2018

Sales
Vessels   487.9 489.5
Unallocated   8.6 8.5
Total, operating segments   496.5 498.0
Eliminations   -0.1 -0.1
Total sales of the Group   496.4 497.8

Operating income
Vessels   60.8 55.2
Unallocated   -43.4 -45.9
Total operating income of the Group   17.4 9.3

SALES
Passenger-related revenue       448.4 450.3
Cargo revenue   45.6 45.3
Miscellaneous sales revenue       2.4 2.3
Total   496.4 497.8

Pledged assets and contingent liabilities

EUR M   Dec 31, 2019 Dec 31, 2018

Contingent liabilities   138.7 142.2
Assets pledged for own debt   255.5 301.0
Investment commitments not included in the   158.1 175.3
accounts
 – contractual amount   198.2 195.8

Financial ratios and statistics

Jan 1, 2019- Jan 1, 2018-
    Dec 31, 2019 Dec 31, 2018

Equity per share, EUR   21.77 21.36
Dividend per share, EUR   0.45 0.20
Number of shares on balance sheet date   10,800,000 10,800,000
Return on equity (ROE)   4.7 % 2.4 %
Return on investment (ROI)   4.8 % 2.9 %
Equity/assets ratio   50.7 % 49.4 %

Investments, EUR M   29.9 15.9
 – as % of sales   6.0 % 3.2 %

Passengers   6,300,480 6,411,537
Cargo units   133,940 128,549

Average number of employees, full-time   2,632 2,671
equivalent

Earnings per share = (Income before taxes –
income taxes +/– minority interest) / Average
number of shares

Equity per share = Equity attributable to
parent company shareholders / Number of shares
on balance sheet date

Return on equity (ROE), % = (Income before
taxes – income taxes) / Equity including
minority
interest (average for the year)

Return on investment (ROI), % = (Income before
taxes + interest and other financial
expenses)
/ (Total assets – interest-free liabilities
[average for the year])

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.

The above figures from the financial statements
have been audited.

Annual general meeting

The Annual General Meeting of Viking Line Abp will be held at 12 noon on
Thursday, April 23, 2020 at the Alandica Kultur och Kongress auditorium,
Strandgatan 33, Mariehamn, Åland, Finland.

An electronic version of the Annual Report for the financial year 2019 will be
published during the week of March 2, 2020 on the Company’s website,
Vikingline.com. The printed Annual Report will be published in Swedish and
Finnish during the week of March 16, 2020.

Financial information for 2020

During the financial year 2020, Viking Line Abp’s financial reports will be
published for the periods January 1 to March 31, 2020; January 1 to June 30,
2020; and January 1 to September 30, 2020. The Business Review for January–March
will be published on April 23, the Half-Year Financial Report for January–June
on August 20 and the Business Review for January–September on October 21. The
Year-End Report for the financial year 2020 will be published on February 18,
2021.

Mariehamn, Åland, February 12, 2020

VIKING LINE ABP
The Board of Directors
Jan Hanses
President and CEO

Jan Hanses
President and CEO
jan.hanses@vikingline.com
+358-(0)18-270 00

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