Financial review

Financial review

Consolidated financial results
On 4 April 2017, the merger between Wilh. Wilhelmsen ASA and WallRoll AB was completed (The Merger transaction), with Wilh.Wilhelmsen ASA as the surviving company, renamed to Wallenius Wilhelmsen Logistics ASA (WWL ASA). Following the Merger transaction on 4 April 2017, the ownership in the jointly owned entities, Wallenius Wilhelmsen Logistics AS (WWL AS, jointly owned 100%), EUKOR (jointly owned 80%) and American Roll-on Roll-off Carrier (jointly owned 100%) were all consolidated by WWL ASA. These investments were previous to the merger transaction accounted for under the equity method.

Due to the Merger transaction described above which materially impacts the consolidated historical financial statements for WWL ASA, the below discussion and analysis of financial performance for 2017 compared to financial performance for 2016 is not based on historical financial information since the board is of the opinion that this would not provide meaningful information. Therefore, the discussion and analysis below are based on unaudited proforma income statement information as presented in note 3 to the consolidated financial statements. The proforma income statement for 2017 and 2016 have been prepared on the basis as if the merger transaction had been effective on January 1, 2016.

Total income for WWL was USD 3 800 million for the full year of 2017. Total income for 2017 includes non-recurring items of net USD 57 million, related to a merger accounting loss of USD 64 million and USD 7 million in sales gain on fixed assets in the US. Adjusted for the extraordinary items, total income was USD 3 857 million, up 8% compared with the full year 2016. The increase in total income was driven by increased ocean volumes, increased surcharges related to bunker adjustment clauses (“BAF”), and growth in the landbased business partly offset by lower net freight / CBM for the ocean segment.

For 2017, EBITDA ended at USD 614 million and included negative non-recurring items of USD 92 million, mainly related to the merger accounting loss and organisational restructuring costs. EBITDA adjusted for these items was USD 706 million, an underlying improvement of 19% compared to 2016. The improved performance was primarily driven by an increase in transported volumes, improved cargo mix, realisation of synergies, project cargo shipments in the Atlantic, and improved results for the landbased segment.

Net financial expenses were USD 104 million for the full year of 2017. Interest rates increased during the year, but had only a marginal negative impact due to a large portion of debt being secured through a hedging program. Net financial expenses were positively impacted by USD 25 million in unrealised gains from interest rate hedges.

WWL recorded a tax expense of USD 3 million for the full year of 2017 compared to an expense of USD 22 million in 2016. The reduction in tax expense was caused by a significant reduction in WWL’s deferred tax liability due to the reduction in the federal tax rate in the US from 35% to 21%. For further information, please refer to the “note 6 – tax” in the group accounts.

Profit for the full year of 2017 was USD 154 million compared to USD 116 million for 2016. Adjusted for the extraordinary items in 2017 the profit was USD 245 million, an improvement of 111% compared with 2016.

Financial position and capital structure
WWL currently has an equity ratio of 35.8%. The liquidity position is good, with cash and cash equivalents of USD 796 million and about USD 275 million in undrawn credit facilities. WWL had total interest-bearing debt of USD 3 764 million at the end of 2017 of which outstanding bonds totaled USD 388 million and the remainder consisting of bank loans, export credit facilities and leasing commitments. WWL was in compliance with all loan covenants at year-end 2017.

Several financing arrangements were concluded during 2017:

  • As part of the purchase consideration, a 5-year unsecured bond of USD 80 million was issued to Wallenius Lines at 6% fixed interest rate, effective 4 April 2017.
  • In May 2017, two sale-leaseback transactions concerning four vessels were concluded by EUKOR, each with purchase options in June or September 2027.
  • In late September 2017, WWL ASA issued a new NOK 1,000 million unsecured bond with a floating interest rate coupon set at 3-month NIBOR plus 3.00% p.a. and maturity date on 12 October 2022.
  • In August and October 2017, WWL purchased forward starting interest rate swaps for USD 785 million to ensure a hedge ratio of 60-70% for the foreseeable future.

Cash flow
The discussion and analysis presented below is based on the historical consolidated cash flow statement for 2017.

Net cash flow from operating, investing and financing activities was positive by USD 715 million in 2017. The net cash flow in 2017 included USD 494 million in “cash and cash equivalents from incoming entities” related to the merger as well as realisation of net financial investments of USD 203 million. Adjusted for these extraordinary cash flow items, the net cash flow was USD 18 million.

The net cash flow from operations was USD 462 million driven by positive earnings (EBITDA). Cash flow from investing activities was USD 710 million, significantly impacted by the extraordinary cash flow items. Adjusted for the extraordinary cash flow items, the net cash flow from investing activities was USD 13 million. The ordinary investments items are mainly related to a sale-leaseback transaction in EUKOR, vessel CAPEX (e.g. drydocking and instalments for newbuildings) and the acquisition of Keen. Net cash flow from financing activities was negative by USD 457 million with proceeds from issue of debt of USD 281 million, repayment of debt of USD 568 million, interest payments of USD 119 million and realised derivatives of USD 31 million as the main items.

Pursuant to section 4, sub-section 5, confer section 3, sub­section 3a of the Norwegian Accounting Act, it is confirmed that the annual accounts have been prepared under the assumption that the enterprise is a going concern and that the conditions are present.