The year 2019 was one of transformation. After prioritizing inner and outer growth, realized through acquisitions and an enhanced sailing system, we changed our course in 2019. We have now been improving current operations through streamlining in various areas.
We have taken a variety of optimization measures. Undoubtedly, a lot of effort has been made by our executives and employees in these changes. I would therefore like to use this opportunity to thank them for meeting these challenges with a positive attitude, and showing great work ethic.
We have simplified our organizational chart, reduced the number of executives, merged divisions, optimized our sailing system and sold off vessels. All these actions aim at improving the Company’s performance while maintaining the excellent service on which our customers depend.
External circumstances worsened significantly as 2019 progressed. Decreased import volume and tough competition meant that our profit target was not met, despite streamlining actions.
Eimskip’s board and executive team know that the Company´s shareholders expect better results than are now published in our annual financial statement. The aforementioned actions were a start in meeting those expectations, more however will have to be done and the results need to improve.
Therefore, it is clear that 2020 will be challenging and eventful.
Firstly, a milestone will be reached when our collaboration with Royal Arctic Line formally commences. Three vessels on one route will then connect Iceland, Greenland and The Faroe Islands with the other Nordic countries. We believe that this collaboration will be advantageous for the Company and provide new revenue possibilities. However, delays in delivery of new vessels have also delayed this collaboration, but patience and fortitude conquer all things, and I believe the wait will prove worthwhile.
This year, we will unite our headquarters in Iceland in a single location. It is our belief that this will result in improved service, operational optimization and increased employee satisfaction. In the near future, we will furthermore start construction of a new warehouse in Thorshavn, where a new quay wall is expected later this year. Through this, the service we can provide to The Faroe Islands will increase considerably, and we can offer our customers even better transportation services.
All talk about bottom lines can sound hollow and empty when the world is going through a pandemic. The outbreak has already influenced our day-to-day work and been very trying for all stakeholders. However, our goal and duty is to maintain our service level in any way possible and it is safe to say that logistics have never been more important. I know that the hard-working people of Eimskip will rise to the occasion and do everything in their power to deliver superior service to our customers, communities and business partners. Finally, I would like to repeat my thanks to our staff with good wishes for the year 2020 and I also want to thank the Board of Directors for their enjoyable and good cooperation during the year.
Chief Executive Officer Address
The year 2019 was characterized by a 10.7% decrease in import to Iceland compared to 2018. Import decreased in line with the total import numbers from Statistics Iceland. Despite the loss of the capelin season in Iceland in the first half of the year and a considerably lower catch during the last quarter, export volume was on level with the previous year. However, I was very pleased to see that our efforts and commitment in various improvement and streamlining programs positively impacted the results and will continue to deliver benefits in 2020. This is in line with the company’s current journey to streamline, integrate, and focus on core operations. The same goal was behind merging various back-office functions, closing and merging a few of our offices and realigning the container sailing system to adjust for lower volume levels. Furthermore, the strong focus we had on our operations in Norway resulted in improved operational results throughout the year and the Trans-Atlantic services grew by double digit numbers. Additionally, I am satisfied with the good improvements we made overall in our international forwarding operation, where revenues and margins increased between years despite lower volumes.
We introduced a new container sailing system in October and reduced the number of container vessels by one, lowering our fixed operating cost. At the same time, we were able to increase the system’s service and reliability with larger vessels and simpler sailing routes. At the end of the year, Eimskip divested five vessels: three refer vessels and two container vessels, and took important steps in the renewal of the container vessel fleet and as well in aligning the reefer vessel fleet to current operations in transport in and out of Norway. Currently, two new container vessels are being built in China and they are now expected to be delivered in Q2 and Q3 2020. The new builds are ‘Polar Coded’, meaning they are specially designed to reduce environmental impact. They will serve on the forthcoming sailing route between Greenland, Iceland, the Faroe Island, Denmark, and Sweden once the co-operation with Royal Arctic Line will commence, now expected when the first vessel arrives in Q2 2020.
Eimskip published its ESG report for the year 2019 parallel to publishing the financial statements for the year. For a long time, Eimskip has had ambitions to limit its effect on the environment: the Company’s environmental policy was introduced in 1991. Eimskip’s carbon footprint, as measured by CO2 emissions per ton of transported cargo, has decreased by 14.2% since 2015. That exceeds the goal set in 2015, which states the company’s aim to reduce the carbon footprint by 40% by 2030. I am certain that Eimskip currently offers the most environmentally friendly transport solution to and from Iceland and the Faroe Islands and even more so once we add the new vessels to our operations.
Considering the above Eimskip’s management is fairly pleased that the EBITDA (adjusted for IFRS 16) for the year 2019 was on par with the year before, despite the drop in import volume to Iceland. This is largely due to general improvements in international forwarding operations, better results in Norway, and various streamlining measures that effectively zeroed out the negative effect of the lower liner volume. As an example, salary expenses decreased by EUR 5.9 million year on year, mostly due to a decrease in FTEs as a result of business integration measures. Even though net earnings were low, at only EUR 1 million, we would have been on par with the previous year if not for the one-off impairment expenses related to the sale of five vessels and a one-off tax expense in Q1 2019. However, we are also very pleased with the significant increase in cash flow from operations between years.
Towards the end of the year, we publicly introduced for the first time a target for long-term capital structure and a three-year target CAPEX plan. Our aim is to maintain an equity ratio near 40% and to have a modest leverage ratio of 2-3 times net interest-bearing debt against our EBITDA. During 2019, we took many positive steps to increase information flow and insight into our business and are committed to continue to increase transparency, predictability and service to our shareholders, investors and capital market analysts.
2020 AND WHAT LIES AHEAD
In February, we made some important changes to our organizational structure with the integration of the Sales & Services division and the forwarding unit TVG-Zimsen into the new Iceland Sales & Business Management division. Björn Einarsson, who led TVG-Zimsen for 14 years, took over as Executive Vice President of this new integrated division. The objective of these changes was to simplify Eimskip’s service offerings and brands, especially in Iceland; continue to streamline the operation; and to increase emphasis on business origination offering a complete range of logistic services. Following these changes, I believe we are better equipped to further improve service to our customers.
Eimskip will continue to develop solutions and adapt to customers’ needs in a fast-changing technical environment where self-service has become more important. Digitalization and automatization of processes are key elements in the continued development of services.
Before the global impact of the COVID-19 pandemic, the Icelandic economy had been slowing down and import volumes were expected to remain at somewhat lower levels than in 2019. In contrast, export from Iceland and the Faroe Islands was expected to be somewhat stronger than in 2019. A further positive realization of the new container sailing system that was introduced in October 2019 is expected, especially once the co-operation with Royal Arctic Line commences. Further growth is planned in the Trans-Atlantic services, which grew by double-digit numbers in 2019. Some improvements in the international forwarding services were also expected. However, uncertainty in global markets and the COVID-19 pandemic may negatively affect our results. To what extent remains to be seen, but our focus and actions have been aimed at securing the health and safety of our employees on the one hand, and to maintain and secure our logistic chain on the other so we can keep on servicing our customers. Our employees are also aware of the important role Eimskip plays as a vital infrastructure company that provides solutions and structure for import and export of products, especially in Iceland and the Faroe Islands.
I would like to take this opportunity to thank Eimskip's employees for their dedication and valuable contribution to the company. Over the last few weeks, I have truly seen the experience and resilience of the Eimskip team and how capable we are when it comes to service and finding solutions for our customers.
I would also like to thank our customers and partners for their valuable business relationships. I look forward to continuing cooperation and communication with our diverse and important customer and partner group.
Board of Directors
CHAIRMAN OF THE BOARD
Baldvin was born in 1983 and lives in Iceland. He has worked for Samherji hf. in various roles since 2007 after earning a BS degree in Industrial Engineering from the University of Iceland. From 2013-2016, he was the CEO of Iceland Drilling, of which Samherji is a major shareholder. When rejoining Samherji in 2016, he was made Manager of Business Development. Baldvin joined the board of Olíuverzlun Íslands in 2011 and became the board´s chairman in 2017, until he stepped down at the end of 2018 when the company was sold. Baldvin has been on the Board of Directors since 6 September 2018 and currently serves as the Chairman of the Board and a member of the Remuneration Committee. He is, however, not independent of Samherji Holding ehf., which own a total of 50.6 million shares in the Company.