2018 was a challenging year for Wallenius Wilhelmsen. The financial results weakened compared to 2017 and the share price dropped with about 50% due to weaker results and the more uncertain outlook. The market environment remained challenging with pressure on rates and the volume outlook becoming more uncertain towards the end of the year. However, on a positive note, Wallenius Wilhelmsen delivered on the revised USD 120 million synergy programme and initiated a new two-year USD 100 million performance improvement programme in 2018.
In 2018, financial results were weak compared to the relatively strong performance of 2017. The performance shortfall was largely driven by the ocean segment, which was negatively impacted by higher and rising bunker prices, a reduction in contracted Hyundai Motor Group (‘HMG’) volumes, lower rates, and unfavourable currency movements. The negative development was partly countered by underlying positive volume development, especially for high & heavy, and increased realisation of synergies. For the landbased segment, the results were in line with previous year. The landbased results were positively impacted by the Melbourne terminal being fully operational and the acquisition of Keen Transport, while Solutions Americas – Auto (VSA) experienced weaker results due to a less optimal customer and service mix.
The market fundamentals continued to improve in 2018, with modest growth for automotive and a continued recovery for the high & heavy segment. Furthermore, the order book remains very low and the net fleet growth is expected to be marginal, perhaps even negative, for several years to come. However, the short-term volume outlook became more uncertain towards the end of 2018 due to the risk of increased trade barriers, slower global economic growth, and weaker automotive sales in China and Europe.
Throughout 2018, the ocean segment continued to face the challenge of overcapacity of tonnage resulting in pressure on freight rates, which are currently at a low level. A key focus during contract negotiations in 2018 has been on changing service commitments to improve contract profitability. Additionally, BAF clauses are in the process of being adjusted to reflect the implications of IMO 2020. Overall, Wallenius Wilhelmsen has been able to retain both desired existing business, and achieve a high degree of new business on both land and sea in 2018.
Throughout the year, Wallenius Wilhelmsen benefited from the positive effects of the merger between Wilh. Wilhelmsen ASA and Wallroll AB in April 2017. The new structure has been well received by customers, suppliers and financial stakeholders,and the group enjoys a very strong standing in the market. The USD 120 million synergy target was achieved in the third quarter 2018. The synergy programme was immediately succeeded by a new two-year performance improvement programme targeting USD 100 million in bottom line improvements, which will further strengthen the company and improve financial performance. A key part of the programme is leveraging digitalisation and introducing new technologies to optimise voyage and fleet management, increasing operational efficiency and reducing costs.
In April 2018, Wallenius Wilhelmsen finalised the project to establish a legal and funding structure consistent with the business unit structure consisting of Wallenius Wilhelmsen Ocean (‘WW Ocean’), Wallenius Wilhelmsen Solutions (‘WW Solutions’), EUKOR and ARC. As part of this process, all ship loans in Wallenius Logistics AB and Wilhelmsen Lines AS were either refinanced or amended to allow for the restructuring. In the second half of the year, Wallenius Wilhelmsen refinanced about USD 450 million in ship loans. Following the restructuring and refinancing activities in 2018, the Ocean business has limited refinancing needs for 2019 and 2020.
In July 2018, WW Solutions acquired 70% of the membership interest in Syngin Technology LLC (‘Syngin’) for an estimated purchase consideration of about USD 29 million on a cash and debt-free basis. The acquisition of Syngin marked the entry into the full life cycle logistics space for Wallenius Wilhelmsen.