Wilh. Wilhelmsen ASA (WW) - the world’s biggest roll-on/roll-off ocean carrier - has said that the recent decline in bunker prices will be positive for operating profit going forward due to the partial hedging of exposures.
"Appreciation of the USD, lower bunker prices and falling interest rates which reduce the market value of derivative contracts are all factors which will contribute positively to the group’s future profitability," the group said in its report for the fourth quarter of 2008 and preliminary report for last year.
Wilh. Wilhelmsen explained that its seeks to partly hedge interest rate, currency and bunker exposure through various instruments in the derivatives markets.
With the recent slide in interest rates and bunker prices, and the appreciation of the USD, the market values of the hedge contracts have contracted sharply. According to Wilh. Wilhelmsen, this development was positive for the group’s operating profit going forward due to the partial hedging of exposures. "The unrealised losses have no effect on the group’s cash flow," the Norwegian group said.
Earlier this week, Wilh. Wilhelmsen announced that it had achieved an operating income of USD 3.4 billion in 2008, up by more than 25 percent compared with 2007. The group's shipping and maritime services segments were the main contributors to the improved top line.
The operating income for the year totalled USD 3 434.2 million, compared with USD 2 727.6 million in 2007. Net operating profit came to USD 351.6 million, compared with USD 265.7 million in 2007.
Operating income for the fourth quarter amounted to USD 853.4 million, up from USD 740.1 million for the same period in 2007. Operating profit came to USD 134.0 million, compared with USD 58.9 million during the prior year quarter.
“A booming world economy, strong global trade and the increasing demand for maritime transport of cars resulted in record transport volumes and operating income for our ship operating companies in 2008,” said
Ingar Skaug, group chief executive of Wilh. Wilhelmsen.
“However, as the year progressed, there was a significant contraction in volumes in the wake of the grave financial turmoil. Consequently, cargo volumes for the fourth quarter declined compared to the same period in 2007. We expect a decline in car volumes for 2009, and although the short term outlook for high and heavy and project cargoes are somewhat down, we deem the underlying demand to be more stable.”
With a ten-fold increase in operating income from just above USD 100 million in 2004 to USD 1 015.8 million in 2008,
Wilhelmsen Maritime Services (WMS) - which also includes bunker broking and trading company
Wilhemsen Premier Marine Fuels - provided a valuable contribution to the group’s results. The operating profit for the segment in 2008 came to USD 85.1 million.
“WMS records a significant growth in operating income, driven by the increase in global trade and extraordinary high newbuilding activities,” said Skaug.
“The majority of its activity is related to ship operations, a market that historically has been less cyclical than the newbuilding market. However, the significant uncertainty regarding cancellations and delays at the yards poses a risk for WMS.”
Operating income for the group’s shipping segment in 2008 was driven partly by higher bunker compensation. Wider coverage for bunker adjustment clauses (BAFs) and record bunker prices during the first nine months of 2008 increased such compensation. This was particularly pronounced in the fourth quarter of 2008 owing to the time lag in recording bunker compensation.
Wilh. Wilhelmsen paid a total dividend of NOK 7 per share in 2008. The company’s intention is to pay dividend twice a year. The board proposes a payment of NOK 2 per share in May for 2008.
Commenting on the forecast for 2009, Wilh. Wilhelmsen said "The outlook for the WW group’s markets in 2009 is highly uncertain. Although the WW group is operationally robust with wide flexibility to adjust the group’s cost base, the WW board expects the global economic downturn to have a strong negative impact on the group’s operating profit in 2009."
