Irish Continental Group Half Year Results
Half Yearly Financial Report for the Half Year Ended
- Good volume growth in freight
- Passenger and car markets mixed in first half but summer trading satisfactory
- Increase in Revenue (up 3.3%), EBITDA (up 12.1%) and Basic EPS (up 19.7%)
- Net Debt down to €105.4 million from €116.0 million at December 31, 2012
- Interim dividend maintained at 33 cents
- Volume growth in summer, in both freight and passenger, although weaker sterling is a headwind
In a comment John B. McGuckian Chairman stated, ‘‘This was a positive half years trading with increases in revenue and operating profit driven mainly by higher freight carryings and lower fuel costs, partially offset by weaker passenger markets. Summer trading has been encouraging across most business areas, with volume growth in passenger and freight offset by weaker sterling, which affects tourism yields.’’
In the prior year the group disposed of its subsidiary Feederlink and the comparatives set out in the Interim Management Report have been restated to exclude trading from discontinued operations. The Board of Irish Continental Group plc (ICG) reports that, in the seasonally less profitable first half of the year, the group recorded revenue of €120.9 million compared with €117.0 million in the same period in 2012, an increase of 3.3%. Earnings before interest, tax, depreciation and amortization (EBITDA) was €15.8 million compared with €14.1 million in the same period in 2012. Operating profit was €6.4 million compared with €4.9 million in 2012. Group fuel costs were €23.9 million compared with €25.7 million in the same period in 2012. There was a net finance charge of €3.1 million (2012: €1.2 million) which includes a net pension expense of €1 million (2012: €0.8 million) and net bank interest payable of €2.1 million (2012: €0.4 million). Profit before tax was €3.3 million compared with €3.7 million in the first half of 2012. The tax charge amounted to €0.3 million (2012: €0.3 million). On a continuing basis EPS was 16.4c compared with 13.7c in the first half of 2012. Adjusted EPS (before non-trading items and net pension interest expense) amounted to 21.8c (2012: 16.9c).
The board declares an interim dividend of 33 cent per ICG Unit payable on October 4 to shareholders on the register at September 20, 2013.
The division comprises Irish Ferries, a leading provider of passenger and freight ferry services between Ireland and both the U.K. and Continental Europe, and the bareboat chartering of multipurpose ferries to third parties. Irish Ferries operated 2,119 sailings in the period, up 1.5% on 2012.
Revenue in the division was €69.4 million (2012: €69.5 million). Profit from operations increased to €4 million (2012: €3.2 million), with a €1.3 million (7%) reduction in fuel costs to €17.2 million, partially offset by higher drydock costs incurred on one of the vessels in the fleet.
In the first half passengers carried were up 0.3% at 678,400 while total cars carried in the first half of 2013 were 142,500, down 4.2% on the previous year, but at higher yields.
In RoRo freight, Irish Ferries’ volumes were up 7.9% to 99,700 units, when compared with the first half of 2012.
The MV Kaitaki remained on charter to P&O during the period, trading in New Zealand. The charter to P&O terminated on June 30, 2013 following which a new charter commenced, on July 1, 2013 to KiwiRail. The new charter is for a period of four years with an option for the charterer to extend by a further three years.
Container and Terminal Division
The Container and Terminal Division include the shipping line Eucon as well as the division’s strategically located container terminals in Dublin (DFT) and Belfast (BCT).
Turnover in the division was up 8.3% to €52.2 million (2012: €48.2 million), while profit from operations was €2.4 million (2012: €1.7 million) reflecting stronger shipping volumes. Fuel costs in the division were down 6.9% at €6.7 million.
Total containers shipped were up 11.3% at 140,600 teu (2012: 126,300 teu). Units lifted at the division’s port facilities in Dublin and Belfast were down 3.5% at 86,400 lifts (2012: 89,500 lifts) with an increase in Dublin being offset by a reduction in Belfast due to ship schedule changes.
EBITDA for the period was €15.8 million compared with €14.1 million in the same period in 2012. Cash flow generated from operations was €23.1 million versus €17.6 million in 2012. Capital expenditure in the period was €6.6 million (2012: €5.1 million) while pension payments in excess of service costs amounted to €2.4 million (2012: €3.0 million). Free cash flow (net cash from operating activities after capital expenditure) was €14.2 million compared with €11.9 million in the previous half year.
Net debt at the end of the period amounted to €105.4 million and this compares with €116.0 million at December 31, 2012. The final dividend for 2012, amounting to €12.3 million was paid during the period.
Shareholders equity decreased to €11.8 million from €18 million at December 31, 2012. The main reasons for the decrease were primarily due to the dividend paid of €12.3 million offset by €6 million of total comprehensive income, which includes an actuarial gain arising on the retirement benefit obligation of €2 million and a profit for the period of €3 million.
Principal Risks and Uncertainties
The group has a risk management structure in place which is designed to identify, manage and mitigate the threats to the business. The key risks facing the group in the six months to June 30, 2013 include operational risks such as risks to safety and business continuity, commercial and market risks due to reduced demand for passenger and freight services combined with the risk of increased supply of shipping capacity due to the mobility of assets, and financial and commodity risks arising from the current financial and economic environment.
Safety and Business Continuity
The group is dependent on the safe operation of its vessels, plant and equipment. There is a risk that any of the group’s vessels could be involved in an incident which could cause loss of life and cargo and cause significant interruption to the group’s business. In mitigation, the group carries insurance in respect of passenger, cargo and third party liabilities, but does not carry insurance for business interruption due to the cost involved relative to the insurable benefits. The operation of vessels of the type listed by the group are subject to significant regulatory oversight by flag state, port state and other regulatory authorities whose requirements can change from time to time.
The business of the group is also exposed to the risk of interruption from incidents such as mechanical failure, or other loss of critical port installations or vessels, or from labor disputes either within the group or in key suppliers, for example ports or fuel suppliers, or from a loss of significant IT systems.
Commercial and Market Risk
The passenger market is subject to the current challenging economic conditions, the weakness of sterling relative to the euro which impacts on incoming demand to Ireland and to the competitive threat from short-haul and regional airlines. The freight market is subject to general economic conditions and in particular the reduced level of international trade in North West Europe. Given the mobile nature of ships there is also the risk of additional capacity arising in any of the group’s trading areas at relatively short notice. The group has commercial arrangements with freight customers which mitigate the immediate effects of additional market capacity but in the medium term the group is exposed to the dilution of its customer base.
Financial and Commodity Risks
In light of the challenges arising in financial markets there is a higher degree of financial risk in the business. Specific risks include higher risk of default by debtors, reduced availability of credit insurance and potentially reduced availability, and higher cost, of financing. Other financial risks include the risks to the group's defined benefit pension schemes from changes in interest and inflation rates, longevity, and changes in the market value of investments. In addition to normal risks attributable to the group’s defined benefit pension schemes, the group is exposed to risk attributable to its membership of the multi-employer scheme, the Merchant Navy Officer Pension Fund (MNOPF), where the participating employers have joint and several liability for the obligations of the scheme. The rules of the scheme provide for joint and several liability for employers for the obligations of the scheme which had a funding shortfall of £152 million as at March 31, 2012. This means the group is exposed, with other performing employers, to a pro rata share of the obligations of any employers who default on their obligations. The group is also exposed to the risk of a discontinuance basis debt arising (a “S 75 debt”) if it ceases participation in the MNOPF. This would be a larger sum than the on-going deficit share and represents a contingent liability. In terms of commodity price risk the group’s vessels consume heavy fuel oil (HFO), marine diesel gas oil (MDO/MGO) and lubricating oils, all of which continue to be subject to price volatility. The group’s policy has been to purchase these commodities in the spot markets and to remain unhedged.
Related Party Transaction
There were no related party transactions in the half year that have materially affected the financial position or performance of the group in the period. In addition, there were no changes in related party transactions from the last annual report that could have a material effect on the financial position or performance of the group in the first six months.
Post Balance Sheet Events
There have been no material subsequent events, outside the ordinary course of business, to report since the period ended June 30, 2013.
After making enquiries and taking into account the group’s committed banking facilities which extend to September 2017, the Directors believe that the group has adequate resources to continue in operational existence for the foreseeable future. In forming this view the Directors have considered the future cash requirements of the group’s business in the context of the economic environment over the next 12 months, the principal risks and uncertainties facing the group, the group’s budget plan and the medium term strategy of the group, including capital investment plans. The future cash requirements have been compared to bank facilities which the Directors have negotiated. For this reason, they continue to adopt the going concern basis in preparing this half yearly financial report.
This half yearly financial report has not been audited or reviewed by the auditors of the group pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.
Current Trading and Outlook
Trading during the peak summer months has been satisfactory. In the eight weeks from June 30-August 24,2013 total passengers carried were up 9%, while cars carried were up 6%. However weaker sterling (down 8.5% year on year in July and August) is affecting yields on our U.K. originating car business. Roll on Roll off freight volumes were up 12% during the two months. In the Container and Terminal division container carryings remained strong, up 15% in the two months while port lifts were down 5% compared to the same period last year.
Cumulatively in the 34 weeks to August 24, 2013, Irish Ferries carried 1,105,400 passengers, up 4% while the number of cars carried was 238,400, flat against the same period last year. In the Roll on Roll off freight market, Irish Ferries carried 129,500 units, an increase of 9% compared with the same period in 2012. Container freight volumes shipped increased by 12% to 182,800 teu compared with the same period last year, while port lifts fell by 4% to 113,100 lifts year on year.
The outlook for the remainder of the year is for a continuation of the trends seen to date, with growth in freight particularly, but with the impact of a weaker sterling weighing on car and passenger yields in our U.K. originating traffic.