Annual Report 2020

Dear Shareholders,
Eimskip did not escape the unusual circumstances the world found itself in during 2020. This reminded us frequently of the importance of unhindered transportation of goods around the world. I am proud of our employees, who left no stone unturned in their efforts to find creative and alternative solutions and provide excellent service to our customers in the midst of a very challenging environment.

Our emphasis over the last two years has been on streamlining Eimskip’s operations, as our profit targets have not been met. It became evident how important the streamlining measures were when COVID-19 broke out in the first half of 2020, creating a significant impact on our operation. It could be said that the pandemic acted as an accelerator in the process we had already started, and the measures continued to gather pace in 2020. We have learned that although it takes a long time and effort to turn a big ship around, it is now apparent that Eimskip can implement changes much faster than we thought reasonably possible. That agility helped us to go even further than originally planned, with changes such as the consolidation of divisions and a decreased overhead, by changing the way things are done and working remotely. I have been impressed by how seamless it was for a large proportion of our office employees to transition to remote working from home during an extended period in 2020, and how adaptive they were to a new working environment.

After a slower than expected start to the year, we reaped the benefits of recent optimization in the latter half of the year. There has been a positive turnaround in various fields of our operations and, following intense efforts, salaries and administrative expenses have now decreased significantly, while EBIT performance is improving. Cash flow generation from operations has been strong and expected CAPEX for the next three years is lower than in previous years, both in line with the strong management focus. This allows for dividend payments and share capital reduction to be distributed to our shareholders. However, the Board and Executive Team agree that the profitability of the container liner services still needs to improve, which will be our focus for the coming months.

Two Board Members are resigning at the 2021 Annual General Meeting. I would especially like to thank Hrund Rudolfsdóttir, who has been on the Board for the last seven years and acted as Vice Chair, for her valuable contribution to the Company. I also thank Vilhjálmur Vilhjálmsson, who has been a Board and Alternate Board Member for the past two years for his valuable contribution. At the same time, I welcome two new Board Members, Margrét Guðmundsdóttir and Ólöf Hildur Pálsdóttir. For the first time in Eimskip’s history, women will make up the majority on the Board of Directors, which is a great milestone for the Company.

Finally, I would like to offer my thanks once more to our employees, with good wishes for the year ahead. I also want to thank the Board of Directors for their enjoyable and effective cooperation during 2020.

Acceptable results for a challenging year
After a demanding and extraordinary 12 months, I am quite pleased with the results for 2020. Our International Operations performed well and Domestic Operations in Iceland also delivered good results. Liner Services had a more challenging year however. Although we achieved cost savings and improvements, results in our container liner system are still below acceptable levels. Improving profitability in the container liner system continues to be a special focus for the management team.

EBITDA improved by 2%, or EUR 1.1 million between years, mostly related to managed cost savings, and EBIT increased by EUR 3.6 million and amounted to EUR 17.1 million. Salary expenses decreased by EUR 18.1 million, with EUR 9.6 million of that resulting from streamlining measures. We maintained an extreme focus on cash-flow and accounts receivables during the year, and a third of the planned maintenance capital expenditure was put on hold due to uncertainty surrounding the COVID-19 pandemic.

One of the effects of the pandemic on the shipping industry is that it has led to an imbalance in supply and demand in global container shipping markets. We saw the large deep-sea lines reduce capacity and increase blank sailings, but relatively strong volume has put pressure on freight rates and, for example, caused port congestion around the world adding pressure on the container shipping market. As a result, charter rates in the container vessel market have increased to record levels. Eimskip has responded to these global trends and adapted to dynamic markets and customer needs. We have increased ocean freight rates and adjusted our container system somewhat to make it more reliable and better equipped to service our customers. A good example of that is when we recently enhanced the Trans-Atlantic services with a special focus on delivering fresh fish on our west-bound route to the US and Canada.

Streamlined operations increasing profitability
Our streamlining measures over the past two years continue to result in lower cost and improved profitability. For me and the management team, the journey of integrating and streamlining the operation has not been an easy task and the decision to reduce the number of employees by 180 last year (10% of our workforce) was especially tough. We have invested considerably in automation and reformation of processes and working procedures to support these measures, and one of the positive sides of COVID-19 is that it has propelled us forward rapidly in terms of information technology and its effective use.

The pandemic also forced us and our customers to rethink to some extent how things are done and explore alternative solutions. As a result of that we are now supporting our customers better, for example in transporting fresh fish by sea from the Faroe Islands to the US. As well as providing a good quality service, customers are also lowering the associated carbon footprint, something that is increasingly in demand from our customers.

Fleet renewal milestone
Eimskip celebrated an important milestone in 2020, when our two new container vessels Dettifoss and Brúarfoss came into service and we formalized our vessel sharing agreement in co-operation with the Greenlandic carrier Royal Arctic Line. Greenland has now gained access to international markets via Eimskip’s Trans-Atlantic sailing system, which opens numerous opportunities. I would especially like to thank the crews of Dettifoss and Brúarfoss for traveling to China under challenging circumstances during the pandemic to secure the safe delivery of our new vessels.

Container sailing and customer service focus
Throughout the year we have been constantly monitoring and optimizing our container sailing system and customer service. We adjusted the system in April as part of our operational response to the effects of the pandemic, and again in October when Brúarfoss, the second of our new vessels came into service. Eimskip’s new vessels are making an important contribution to an even more reliable and environmentally friendly sailing system.

Sustainability journey
Sustainability is an on-going journey, and we intensified our focus on this issue during 2020. We formulated a new three-year strategy and action plan, developed and updated number of policies, and began publishing our environmental statistics on a quarterly basis. We are proud of our two new vessels, which are very well equipped and designed to meet exacting environmental standards. We know this journey towards sustainability never ends and we remain committed to always doing better in this regard.

Changing our culture
In June, we consolidated our headquarters under one roof, creating a modern and more dynamic activity-based work environment. At the same time, we decreased the office space at headquarters by 50% or around 3,200 m². This move has been well received by our employees and I am happy to see the positive impact it is having already on our company culture, with more direct lines of communication, increased flow of information and a more dynamic workplace.

During this unusual and challenging year, a lot of effort was put into securing the health and safety of our employees and to maintaining our logistic chain and customer services. Reminded of our role as an important logistic infrastructure company, we also significantly increased the flow of information to all our stakeholders in order to support business continuity and reduce uncertainty surrounding the logistic chain. I am extremely proud of, and thankful to our dedicated employees who managed to keep an unbroken logistic chain throughout the challenges of 2020. Their determined contribution was key to securing our operation, while delivering good customer service and reasonable results.

BALDVIN THORSTEINSSON
CHAIRMAN OF THE BOARD

Baldvin was born in 1983 and lives in the Netherlands. He has worked for Samherji hf. in various roles since 2007 after earning a BS degree in Industrial Engineering from the University of Iceland. In the years 2013-2016, he was the CEO of Iceland Drilling, of which Samherji is a major shareholder. When rejoining Samherji in 2016, he was made Manager of Business Development. Baldvin joined the board of Olíuverzlun Íslands in 2011 and became the board´s chairman in 2017, until he stepped down at the end of 2018 when the company was sold. Baldvin has been on the Board of Directors since 6 September 2018 and currently serves as the Chairman of the Board and a member of the Remuneration Committee. He owns 160,000 shares in the Company, but no share options, but is not independent of Samherji Holding ehf., which held, in total, 59.9 million shares in the Company at the year-end of 2020.