Consolidated financial results
Total income was USD 3 909 million for the full year of 2019, a decrease of 4% compared to the full year of 2018, with lower revenues for both the ocean and landbased segments. Ocean revenues were down 2% driven by lower volumes (-6%), and a decline in other revenue, but were positively affected by higher net freight per CBM and increased fuel cost compensation. Landbased revenues were down 1%.
Adjusted EBITDA ended at USD 837 million for the full year of 2019 compared to USD 606 million in 2018, up by USD 231 million. However, this included a USD 166 million positive impact from the implementation of IFRS 16 as of 1 January 2019. For more information about the impact on the financial results from the implementation of IFRS 16, please see the section below, as well as note 10 to the financial statements. For a explanation the definition of adjusted EBITDA, please refer to the section on “Reconciliation of alternative performance measures” in the Annual Accounts.
Performance improvement initiatives within the ocean segment had a positive effect on the results. They led to cost savings through more efficient operations and lower bunker consumption, and also contributed to higher net freight per CBM as a result of the voyage rationalisation and relinquishment of unprofitable volumes. In addition, particularly the first half of the year saw strong high and heavy volumes which also contributed to higher net freight per CBM. For the ocean segment, results were further boosted by favourable net bunker cost development and favourable currency impact as the USD strengthened throughout the year. Underlying results in the landbased segment were down compared to 2018, driven by lower volumes coupled with some increase in costs.
A few one-off items also had an impact on EBITDA in 2019. An increase to the anti-trust provision had a USD 30 million negative effect on the ocean segment EBITDA (further explained below) and an adjustment to pension liabilities in the landbased segment had a further USD 3 million negative impact. Including these items, reported EBITDA ended at USD 805 million.
The new IFRS 16 leasing standard became effective from 1 January 2019. The standard significantly changed how the group accounts for its lease contracts for vessels, land, buildings and equipment previously accounted for as operating leases. Virtually all leases were brought onto the balance sheet, thereby increasing the group’s assets and liabilities, while at the same time having a positive effect on EBITDA since the relevant lease expenses are no longer included as operating expenses. Since 1 January 2019, the lease liabilities are measured at the present value of remaining lease payments, discounted using the incremental borrowing rate.
A put-call structure exists in the shareholder agreement with the minority shareholders for the investment in EUKOR. Any changes in the valuation of the net derivative is recognised in the profit and loss statement. During 2019, the change in the value of the derivative was USD 52 million recognised as a gain under Other gain/(loss) in the income statement. The change is mainly due to a decrease in the discount rate applied as both the short and long-term US Dollar interest rates have decreased significantly, thereby affecting the valuation of the EUKOR shares. The corresponding value change in 2018 was a USD 12 million loss.
Net financial expenses were USD 247 million for the full year of 2019 compared to USD 169 million in 2018. Interest expense (including realised interest rate derivatives) was USD 202 million, an increase of USD 24 million compared to USD 178 million in 2018. The reason behind the increase is the implementation of IFRS 16 as of 1 January 2019 which increased interest expenses with USD 40 million for the full year of 2019. The underlying interest expenses decreased as a result of a decline in the US Dollar LIBOR rate during the year. Net financial expenses were negatively affected by a USD 31 million loss from realised currency derivatives primarily related to a basis swap for a bond which matured and was repaid in 2019. The total impact from mark-to-market movements in unrealised hedge positions for interest rate, currency and bunker was a loss of USD 18 million, consisting of USD 53 million in losses from unrealised interest rate hedges, and gains from unrealised currency derivatives of USD 25 million and unrealised bunker hedges of USD 10 million. In comparison, the total impact from mark-to-market movements in unrealised hedge positions in 2018 was a gain of USD 41 million.
The group recorded a tax expense of USD 10 million in 2019, compared with an expense of USD 20 million in 2018. The reduced tax expense is partly due to a positive outcome of a withholding tax case in Korea. The Supreme Court in Korea ruled in the company’s favour, resulting in a repayment of withholding tax on dividends from EUKOR paid in the period 2010-2015 of USD 12.4 million. In addition, the group recorded a reversal of USD 6.7 million in accrued withholding tax on dividends for the years 2016-2018. Total effect of this case is thus a tax payable income of USD 19.1 million. Another significant tax effect in 2019 was the recognition of a tax expense of USD 37 million as a result of an updated assessment of valuation allowance for tax losses carry forward for the Norwegian legal entities.
Net profit for the full year of 2019 ended at USD 102 million.
Financial position and capital structure
Wallenius Wilhelmsen had an equity ratio of 37.5% at the end of 2019, down from 38.8% at the end of 2018. The implementation of IFRS 16 new accounting standard for leases as of 1 January 2020 had a negative impact on the equity ratio by about 4 percentage points, so excluding this effect the equity ratio has continued to strengthen during the year. The liquidity position is good, with cash and cash equivalents of USD 398 million and around USD 377 million in undrawn credit facilities. The group had total interest-bearing debt of USD 4 044 million at the end of 2019. Outstanding bonds were about USD 312 million with the remainder consisting of bank loans and leasing commitments. The group complied with all loan covenants at year-end 2019.
Several financing arrangements were concluded during 2019. In March, Wallenius Wilhelmsen Ocean completed financing for scrubber installations for a total of USD 30 million through additional tranches to existing ship financing facilities. EUKOR secured refinancing for three vessels at a total of USD 126 million, and refinanced existing credit facilities of USD 70 million. Finally, the WW Solutions credit facility was refinanced and increased from USD 250 million to USD 450 million in May 2019.
Net cash flow from operating, investing and financing activities was negative by USD 86 million in 2019.
The net cash flow from operations amounted to USD 749 million.
Net cash flow used in investing activities was USD 133 million. The most significant investing activities were the final instalment for the second HERO newbuilding delivered in April 2019 of about USD 40 million, execution of a vessel purchase option of about USD 30 million, regular dry dockings and instalment of ballast water treatment systems of about USD 35 million, and about USD 20 million in the landbased segment for a combination of investments into new facilities and equipment and maintenance CAPEX.
Net cash flow from financing activities was negative USD 701 million. The main items were net proceeds from issue of debt of USD 687 million, repayment of debt of USD 1 102 million, interest payments of USD 202 million, realised derivatives of USD 31 million, and USD 51 million in dividends to shareholders.
Going Concern Assumption
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.