Eimskip's earnings negative by EUR 648 million in 2008

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Jan 2009

The presentation of the group‘s outcome is shown with the aviation guarantees and amounts concerning subsidiaries in sales processes put under discontinued operations. All amounts regarding ongoing operations are thus related to Eimskip‘s transport sector. The transport sector contains liner operations in the North - Atlantic, The Baltic Region and Russia as well as cold store operations on Newfoundland and China. Revenue in Q4 2008 and the year as a whole
Revenue
Total revenue in Q4 were EUR 175,2 million (Q4 2007: 168,9 million), representing a 3,7% increase between years. Total revenue in 2008 were EUR 718,9 million (2007: EUR 680,3 million), representing an increase of5,7% between years. Increase of revenue between years is largely due to a great increase in transport in the Baltic, and Asian operations, a new resource in 2008.
Operating expenses
Operating expenses in Q4 were EUR 171,1 million (Q$ 2007: EUR 149,6 million), a decrease of 14,3% between years. Cost/revenue ratio is 97,7% compared to 88,6% in Q4 2007. In 2008 operating expenses amounted to EUR 662,8 million (2007: EUR 619 million), representing 92,2% of total revenue. The higher ratio can partially be explained by the write offs of claims in light of the financial uncertainty in Eimskip‘s markets. The group has systematically cut down costs to counter the downswing in its main markets,
which will lead to a better outcome in 2009.
EBITDA & EBIT
Eimskip‘s profit EBITDA was EUR 4,1 million in Q4 (Q4 2007: EUR 19,3 million). In 2008 the EBITDA was EUR 56 million (2007 EUR 61,3 million). EBITDA gross profit in Q4 was 2,3% (Q4 2007: 44,1) and 7,8% in the year as a whole (2007: 9%) EBIT loss was EUR 106,4 million in Q4 (Q4 2007: gain of EUR 9 million). In 2008 as a whole EBIT was negative by EUR 83,4 million. In accordance with IFRS, Eimskip has performed impairment tests on goodwill and other assets, resulting in an impairment loss of EUR 100,6 million. This is done in light of the uncertainties in the financial environment.
Financial items
Financial items were EUR 21,9 million in Q4 (Q4 2007: EUR 28 million), with the biggest individual item being interest cost amounting to EUR 22 million in the period (Q3 2008: EUR 19,1 million). In 2008 Financial items were EUR 97,4 million (2007: EUR 41,1 million). Exchange rate profit in Q4 was EUR 2 million compared to a EUR 4,3 million loss in Q3. Loss before and after tax Eimskip‘s loss before taxes was EUR 125,4 million in Q4 (Q4 2007: EUR 18,9 million), and after taxes a loss of EUR 489 million (Q4 2007: 7,8 million). In 2008 as a whole the loss amounted to EUR 648,4 million. Loss from discontinued operations Eimskip‘s cold store business in North-America is now in a formal sales process, and is moved to discontinued operations. The loss from discontinued operations was EUR 356 million in Q4 and EUR 466,2 million in 2008 as a whole. Eimskip‘s XL Leisure Group guarantee amounting to EUR 226,7 million is expensed. The loss from Innovate‘s cold store business in the UK was EUR 72,1 million. Impairments from cold stores operations in the Netherlands was EUR 34,5 million, with those assets now in a sales process. Loss from cold stores operations was EUR 107 million, largely attributable to high finance cost. Assets and liabilities Total assets and liabilities were EUR 1.943,9 million at the end of Q4. Total debts were EUR 2.078,1 million at the end of Q4, and net interest bearing debts were EUR 828,8 million. Equity At the end of Q4, equity was negative by EUR 134,2 million. Working capital Eimskip‘s working capital was positive by EUR 42,7 million in 2008. Property, vessels and equipment were reduced by EUR 22,8 million in the same period. Total investment transactions in 2008 were EUR 35,6 million, with a substantial part being from the purchase of two reefer vessels in Norway. Total investment transactions were negative by 43,5 million and cash equivalents lowered by EUR 46,4 million in the period. At the end of 2008, cash equivalents were EUR 32,7 million. Eimskip‘s financial reorganization As previously announced, the company is working with external consultants on a financial restructuring plan. High leverage and negative equity require actions which the company has actively been working on in the past months. An important part of that work is to secure the sales process of the coldstore operations in North America, which will result in significantly lower leverage. The sales process is expected to conclude in February or March, at which time further restructuring talks will be held with creditors to secure the longterm future of the business. In accordance with previously announced plans, standstill agreements are being pursued with lenders to ensure the liquidity of the business until the sales process has been completed. These discussions have progressed well and the feedback from major lenders has been positive so far. Eimskip has already in place a standstill agreement with the vast majority of bondholders. As previously announced the company has also in place standstill agreements with several other lenders. The liquidity of the business is unaffected by the difficult economic environment in Iceland and remains secure and stable and Eimskip will continue to offer its customers excellent and reliable service. Method of consolidation and auditing The consolidated financial statements comprise the financial statements of Hf. Eimskipafelag Islands and its subsidiaries. The Group’s financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS). Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Group companies are those companies in which the parent company has a controlling financial interest through direct and indirect ownership of a majority voting interest or effective managerial and contractual control. The subsidiaries held or acquired exclusively with a view to subsequent resale are excluded from consolidation and Afkomutilkynning 4F 2008 4 29. janúar 2009 are included as available-for-sale investments and measured at fair value where this can be reliably measured or at cost less impairment losses where fair value cannot be reliably measured. All material intra-group balances, transactions and any unrealized gains from intra-group transactions have been eliminated in consolidation. The equity and net income attributable to minority interests are shown as separate items in the consolidated financial statements. Independent Auditors’ Report To the Board of Directors and Shareholders of Hf. Eimskipafelag Íslands We have audited the accompanying Consolidated Financial Statements of Hf. Eimskipafelag Íslands and its subsidiaries (the “Group”), which comprise the Consolidated Balance Sheet as at 31 October 2008, and the Consolidated Income Statement, the Consolidated Statement of Changes in Equity and the Consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these Consolidated Financial Statements in accordance with International Financial Reporting Standards as adopted by the EU. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of Financial Statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ responsibility Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Financial Statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the Financial Statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the Financial Statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for qualified opinion The Company has announced that it has failed to comply with certain financial covenants with respect to certain credit facilities and has been unable to meet some of its financial obligations. The Company has further announced that it has entered into stand-still arrangements with its main lenders. The Company is in the process of asset disposals where the proceeds will be used to reduce debt. Following the asset disposals the Company will enter into negotiations with its lenders to finalize financial restructuring. This situation indicates the existence of a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern and therefore it may be unable to realize its assets and discharge its liabilities in the normal course of business. The consolidated financial statements do not disclose this fact.
Qualified opinion In our opinion, except for the omission of the information described in the basis for qualified opinion paragraph, the Consolidated Financial Statements give a true and fair view of the consolidated financial position of Hf. Eimskipafelag Íslands as at 31 October 2008, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

Source: Eimskip