John B. McGuckian,
2020 was an exceptionally challenging year for the Group, with the restrictions placed on travel due to the Covid-19 pandemic. While these restrictions brought large-scale disruption and reductions in our passenger business, the other parts of our business proved resilient throughout the entire year.
Our RoRo freight operations grew in 2020 despite the operational and market difficulties presented by the pandemic. The Container and Terminal Division largely maintained its profitability while it optimised capacity levels to market demands. The Group maintained services on all its shipping routes to the United Kingdom and Continental Europe, and operations at its container terminals. Both were critical to maintaining Ireland’s supply chains during this challenging year.
I would like to take this opportunity to thank all our colleagues who made the retention of these critical services possible in these difficult times, but in particular our colleagues on our front line in the ports, on our ships and in our terminals. During this most difficult year, their dedication to their roles kept our ships sailing, our terminals operating and crucially, our supply lines open.
The overall financial outcome for the Group was a loss before tax of €18.0 million (2019: profit of €61.5 million) while operating profit before non-trading items was €0.8 million (2019: €50.0 million). EBITDA (pre non-trading items) generated was €42.1 million (2019: €86.8 million) from total revenues of €277.1 million (2019: €357.4 million).
The Group performance reflected the outcome in our Ferries Division where EBITDA before non-trading items was €22.3 million (2019: €67.2 million). The fall in EBITDA was primarily driven by a reduction in passenger revenue partially offset by lower fuel costs and reduced crewing costs.
Performance in our Container and Terminal Division was improved with an EBITDA of €19.8 million (2019: €19.6 million) through focus on cost optimisation against the backdrop of lower volumes shipped and lower terminal throughput.
Despite the challenging trading conditions in 2020, the Group, through our diversified revenue streams and cost containment measures protected our strong balance sheet. Net debt in the Group reduced from €129.0 million at the beginning of the year to €88.5 million at year end.
A non-trading item arose in 2020 from the transfer of pension liabilities to a third-party insurer.
While 2020 has proved a difficult backdrop, the Group has progressed and completed a number of key strategic developments during the year.
On 1 January 2020, new low sulphur fuel regulations, IMO 2020, became effective. IMO 2020 requires all our vessels operating outside of sulphur emission control areas to reduce sulphur emissions to a level equivalent to consuming 0.5% sulphur content fuel oils compared to the previously generally permitted 1.5%. On its owned and operated fleet, the Group had taken the decision to install exhaust gas cleaning systems (EGCS) to comply with the latest requirements. EGCS allows a vessel to consume cheaper fuel oils while cleaning the exhaust emissions to within the levels mandated by IMO 2020. The W.B. Yeats was delivered with an EGCS system while the Dublin Swift by design consumes marine gas oil which typically has a sulphur content of less than 0.1%.
The installation and commissioning of new EGCS plant on the Ulysses has been completed. A decision was taken not to proceed with a similar installation on the Isle of Inishmore to avoid the risk of delays due to the Covid-19 pandemic. The Group also completed the installation of EGCS plant on the four owned container vessels utilised on Eucon services.
The Group took delivery of and commissioned two electrically powered remotely operated rubber-tyred gantries (RTGs) at its Dublin Ferryport Terminal following the previous successful commissioning of two similar units. We have now installed and commissioned four electric gantries in our Dublin Terminal continuing our transition to this more environmentally efficient mode of operation. The £40m re-investment project by Belfast Harbour Commissioners (BHC) is well underway which includes extensive civil works and the delivery of two new gantry cranes and eight new electrically operated RTGs incorporating the latest technologies to allow for remote operation similar to the RTGs operated at Dublin Ferryport Terminals. During 2020, two gantry cranes were delivered and commissioned to bring the total number on site to three. In December 2019, six RTGs were delivered with a further two delivered in June 2020. Of the eight RTGs, five are commissioned and in use with the remaining three to be commissioned during 2021. These RTGs are supplemented by two rail mounted gantry cranes that will be phased out of operation during 2021.
During 2020 the Group was successful in the public tender to operate a container depot at the new Dublin Inland Port. The Group has signed an agreement to enter into a 20-year lease for this operation on completion of certain civil works by the landlord. The facility is expected to become operational during 2021. The facility will be used for the remote storage, maintenance and upgrade of empty container boxes, releasing valuable capacity for the handling of containers in the port area. The Dublin Inland Port will be located adjacent to Dublin Airport with direct access to the M50 Motorway (Dublin Ring Road) and Dublin Port via the Port Tunnel.
On 9 December 2020, the Trustee of the Group’s principal defined benefit pension scheme entered into a transaction whereby the liabilities relating to pensions in payment at the transaction date were transferred to a third-party insurer on payment of a premium of €160.6 million. This gave rise to a non-cash settlement loss of €9.3 million being the difference between the present value of the transferred liabilities discounted at the AA corporate bond rate used for IAS 19 valuation purposes at the transaction date and the premium paid. The Trustee, in agreement with the Company, also augmented the pension benefits of certain members resulting in an augmentation cost of €1.1 million being the present value of the future benefit changes. The Group’s subsidiary Irish Ferries Limited, the sponsoring employer of the scheme, underwrites the schemes administration expenses and incurred expenses totalling €0.8 million relating to the above transaction. This is an important step for the Group in both reducing the quantum and volatility of pension liabilities on its balance sheet and safeguarding pensioner benefits into the future.
With increasing awareness of the effects of economic activity on the environment the Group is furthering its existing efforts to minimise its environmental footprint. The Group’s strategy is one of minimising costs and achieving economies of scale which very much aligns with reducing environmental impacts. In addition to the installation of EGCS and electric RTGs, the Group has and is currently undertaking additional investments all of which bring significant environmental improvements to our operations. The various initiatives are discussed in the sustainability review at pages 40 to 53.
Exit of the United Kingdom from the European Union
The UK exited the EU on 31 January 2020 and the subsequent transition period ended on 31 December 2020. The Group welcomes the EU-UK Trade and Cooperation Agreement between the UK and the EU agreed on 30 December 2020.
The Group is happy to note that that the long standing Common Travel Area arrangements will remain allowing free movement of passengers (subject to the lifting of Covid-19 restrictions) between both jurisdictions. The Group also welcomes the reintroduction of duty free on its Ireland – UK routes.
It is also noted that the UK have confirmed their adherence to the Convention on the Contract for the International Carriage of Goods by Road which will facilitate retention of the landbridge route through the UK. Despite this, the Group is concerned by the growing perception throughout the transport industry that import controls into ROI ports are more onerous and complicated when compared to other routes into ROI. We continue to engage with all relevant authorities to ensure that a level playing field is in place for all routes onto the island of Ireland from the UK.
In advance of the end of the transition period, Irish Ferries committed to the deployment at short notice of additional capacity on our direct continental services. In early January, we committed to diverting the W.B. Yeats to the Dublin – Cherbourg route. This has added significant capacity to the direct continental services. In addition, due to the revised fleet configuration Irish Ferries has the ability to offer additional frequency on its direct continental services should demand justify it. This capacity is under constant review. However, the direct continental route will never replicate the efficiency, frequency, reliability and cost of the landbridge route for importers and exporters. Therefore, we would again urge all authorities to ensure that the landbridge route is not only retained but given priority at national level. If Ireland is to rely on long direct sea routes, our competitiveness will suffer.
The exit of the UK from the EU has not affected our container shipping operations between Ireland and the continent with no consequential delays or congestion affecting the movement of our containers at European ports.
The Board acknowledges the importance of good corporate governance practices. We have developed a corporate governance framework based on the application of the principles and provisions of the UK Corporate Governance Code (2018) and the Irish Corporate Governance Annex. I report on this framework in the Corporate Governance Report on pages 71 to 83.
During the year, I led the annual evaluation of Board performance of which further details are set out in the Corporate Governance Report on pages 77 to 78. As Chairman, I am satisfied that the Board operates effectively to ensure the long term success of the Group and that each Director is contributing effectively and demonstrating commitment to their role.
Dividend and share buyback
On 1 July, the Group announced that due to the effect of Covid-19, the Directors considered it prudent not to proceed with the 2019 final dividend previously announced. With the continuation of travel restrictions throughout 2020 and the consequential effects on the Group’s financial results, no interim dividend was declared or paid relating to 2020.
In March, the Group bought back 570,000 shares which were cancelled. The total consideration paid for these shares was €1.7 million (2019: €12.9 million).
Since the Interim Management Statement of November 2020, trading to the end of the year in our freight business was exceptionally strong. For the full year 2020 the Ferries Division recorded strong volume growth of 7.1% for RoRo freight. However, the continuation of Covid-19 travel restrictions resulted in a significant decline in both passenger and car numbers. Passenger numbers fell 66.3% and cars 65.8%. In the Container and Terminal Division overall container volumes shipped for the year were down 7.9%, while port lifts were down 8.9%.
In the period from 1 January 2021 to 6 March 2021, trading has been impacted by both the continuation of Covid-19 travel restrictions and new customs requirements following the exit of the UK from the EU. Irish Ferries carried 39,200 RoRo units in the period, a decrease of 30.2% on the prior year, while the number of cars decreased by 75.6% to 7,400. The number of passengers carried in the period decreased by 69.3% versus the prior year.
Covid-19 has had a material impact on our passenger business, and any recovery is unlikely while government restrictions remain in place, however we remain hopeful that the rollout of vaccinations will result in a return to international travel in our markets during 2021.
The material reduction in RoRo freight volumes in the first two months of the year mirror the same level of volume increases in pre-Brexit stockpiling in the last two months of 2020, leaving total volumes flat over the four month period. While volumes are down 30.2% year to date, testament to the flexibility of our fleet, we have adjusted to customer demand and increased tonnage on the Dublin – Cherbourg route. This has limited the decline in RoRo revenue to 8.1% versus the prior year. The current demand on the direct routes to the Continent is expected to decrease as importers, exporters and government agencies become more familiar with new requirements following Brexit. The decline will be in favour of the landbridge which has the benefits of cost, frequency, time and reliability.
The Container and Terminal Division has reintroduced a sixth vessel to the fleet from January 2021. In the period from 1 January 2021 to 6 March 2021, overall container volumes shipped were up 11.1% on the prior year and terminal volumes increased 9.2% on the prior year.
Despite the uncertainty created by the current Covid-19 pandemic and the recent exit of the UK from the EU, with our flexible and modern fleet and strong balance sheet, we are well placed to benefit from the return to growth in all our markets. We look forward to better years ahead.
John B. McGuckian,
10 March 2021