SHIPPING AND SEA TRANSPORT SERVICES, PAGE 10 PASSENGER SERVICES, PAGE 13 PORT OPERATIONS, PAGE

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1 ANNUAL REPORT 2013

2 CONTENT Finnlines in CEO s Review 4 Business Concept, Values and Goals 7 Business Environment 8 Shipping and Sea Transport Services 10 Passenger Services 13 Port Operations 14 Safety and Environment 17 Human Resources 19 Financial Statements Board of Directors Report 22 Consolidated Statement of Comprehensive Income 26 Consolidated Statement of Financial Position 27 Consolidated Statement of Changes in Equity 28 Consolidated Statement of Cash Flows 29 Profit and Loss Account, Parent Company 30 Balance Sheet, Parent Company 31 Cash Flow Statement, Parent Company 32 Five-Year Key Figures 33 Calculation of Key Ratios 34 Quarterly Data 35 Shares and Shareholders 36 Board s Proposal 38 Auditor s Report 39 Corporate Governance Statement 40 Board of Directors 46 Management Board 47 Finnlines Fleet 48 Information for Shareholders 50 Contact Information 51 The Grimaldi Group 52 SHIPPING AND SEA TRANSPORT SERVICES, PAGE 10 PASSENGER SERVICES, PAGE 13 PORT OPERATIONS, PAGE 14

3 Finnlines is a leading shipping operator of ro-ro and passenger services in the Baltic Sea and the North Sea. The Company is listed on the NASDAQ OMX Helsinki Ltd and is a part of the Grimaldi Group, one of the world s largest operators of ro-ro vessels and the largest operator of the Motorways of the Sea in Europe for both passengers and freight. This affiliation enables Finnlines to offer liner services to and from any destination in the Mediterranean, West Africa as well as the Atlantic coast of both North and South America. The Company s sea transports are concentrated in the Baltic and the North Sea. Finnlines passenger-freight vessels offer services from Finland to Germany and Sweden, from Sweden via the Åland Islands to Finland and from Germany to Russia. The Company has subsidiaries or sales offices in Germany, Belgium, Great Britain, Sweden, Denmark and Poland. In addition to sea transportation, the Company provides port services in Finland in Helsinki, Turku, Naantali and Kotka, which are the most important seaports in Finland.

4 Kapellskär Långnäs Rauma Kotka Naantali Helsinki Turku Ust-Luga St. Petersburg Hull Immingham Aarhus Malmö Antwerp Zeebrugge Travemünde Lübeck Rostock Gdynia Amsterdam Radicatel El Ferrol Santander LINER TRAFFIC AREA 31 DECEMBER Bilbao

5 FINNLINES IN 2013 In the first quarter, the last of six ro-ro newbuildings (MS Finnwave) entered service. The vessel flies the Finnish flag. Revenue (EUR million) The AGM held on 16 April 2013 decided that no dividend shall be paid for The AGM set the number of members of the Board of Directors at seven: Mr Christer Backman, Ms Tiina Bäckman, Mr Emanuele Grimaldi, Mr Gianluca Grimaldi, Mr Diego Pacella, Mr Olav K. Rakkenes and Mr Jon-Aksel Torgersen. The AGM elected APA KPMG Oy Ab as the Company s auditor for the fiscal year The Board of Directors of Finnlines Plc decided on 7 May 2013, based on the authorisation granted at the Annual General Meeting on 16 April 2013, on a rights issue, in which the Company offered a maximum of 4,682,104 new shares to be subscribed by the Company s existing shareholders. All offered shares were subscribed for in the rights issue completed at the end of May. The gross proceeds raised by Finnlines in the rights issue were approximately EUR 28.8 million. The net proceeds are used to strengthen the Company s capital structure. Following the registration of the new shares with the Trade Register, the number of Finnlines Plc s shares amounts to 51,503,141 shares and share capital to EUR 103,006, In April, Finnlines port subsidiaries sold four container cranes to a financing company and rented them back with a five-year financing lease contract. This arrangement released EUR 15 million working capital to the Group Result before interest and taxes (EBIT) (EUR million) In the third quarter, Finnlines started sailings in the new services in the Baltic Sea and the North Sea. The expansion of the liner service network is a result of long-term contracts made with key customers In September, Finnlines sold MS Europalink to the Grimaldi Group at the market price of EUR 86 million. In November, Finnlines sold MS Transeuropa to the Grimaldi Group at the market price of EUR 27 million and in December, MS Translubeca to an external party at the market price of EUR 11.6 million. Breakdown of revenue % 95.6% On 5 November 2013, the Board of Directors accepted Mr Uwe Bakosch s request to leave his function as CEO and President of Finnlines Plc. Mr Bakosch will continue as Managing Director of Finnlines Deutschland GmbH. Mr Emanuele Grimaldi was appointed CEO and President of Finnlines Plc starting on 5 November On the same date, the Board of Directors elected Mr Jon-Aksel Torgersen as the new Chairman of the Board of Directors as Mr Grimaldi had stepped down as Chairman of the Board of Directors. Shipping and sea traansport Port operations (EUR million) IFRS IFRS Revenue Result before interest, taxes, depreciation and amortisation (EBITDA) Result before interest and taxes (EBIT) Result for the reporting period Earnings per share (EPS), EUR Dividend per share, EUR 0.00 * 0.00 Equity ratio, % Gearing, % * Board's proposal FINNLINES

6 CEO S REVIEW Finnlines: FIT FOR THE FUTURE 2013 was the year we knocked Finnlines into shape with a view to securing future profitability. To make the line fit for purpose we made a series of changes involving management, staff and the fleet. At the beginning of the year Finnlines joined the Finnish tonnage tax scheme, thereby cementing the relationship between the Company and its home country. The number of owned ships flying the Finnish flag doubled in one year from nine to 18. Control of the fleet was centralised at the Company s Finland headquarters. In June, Finnlines completed a capital increase of EUR 28.8 million. The balance sheet was further strengthened over the course of the year with the sale of vessels, equipment and property that was surplus to requirements. Debt was thereby reduced by around EUR 200 million, resulting in an increase in the equity ratio. This action had knock-on benefits for interest payments and operating expenses. In July, the Company s headquarters moved to the Vuosaari Harbour, which allowed us to cut real estate expenses and get closer to the backbone of our business ships and the port community. Over the summer months, sizeable contracts were activated with the automotive and paper industries. In November, as shipowner and representative of majority shareholders, I decided to take a more hands-on role in Finnlines by joining the management team as chief executive officer. This followed the decision of my predecessor, Mr Bakosch, to concentrate on managing the Finnlines subsidiary in Germany. In the last quarter of the year, Finnlines opened a twice-aweek service from Aarhus to Rostock and increased the frequency of the service between Rostock and Finland to three times a week. A daily service for the Åland Islands was also established both from Kapellskär (Sweden) and Naantali (Finland), thereby introducing duty-free sales onboard our Sweden Finland services. By optimising vessel allocation, routes and trade flows, Finnlines was able to sell or charter out four ships while maintaining or even improving service quality. Thanks to a more efficient ship rotation, for example, we were able to open a new service from Poland to the UK. Not all changes have been easy to implement. Over the year we had to make the painful decision to reduce our headcount by around 120, mainly in the Vuosaari Harbour, in order to restore sustainability to loss-making activities. We expect these redundancies to improve our financial performance as of was an intense year of great change. This trend is likely to continue or even intensify in 2014 as we work towards the entry into force of new International Maritime Organization rules establishing sulphur emissions limits in some of our areas of operation. These rules are likely to trigger big increases in bunker fuel costs for all Nordic operators. Seaborne trade accounts for a high percentage of Finnish GDP, and Finland is highly exposed to the repercussions of these sulphur emissions control areas. Finnlines handles a large chunk of this trade and is therefore determined to turn these challenges into an opportunity. Our main tool for coping with the new regulations is the existing fleet, which is one of the youngest, most modern and most environmentally friendly of the Baltic. With the last newbuilding delivery in the first quarter of 2013, a cycle of investment in 11 ships (five Star-class, six Jinlings) came to an end. The newcomers have vastly improved what were already good economies of scale and scope for the Finnlines fleet. Double ramps, high range ice class and varied access to decks increase the fleet s flexibility. Engine technology and hull design have helped improve environmental performance. In an increasingly competitive market, these features give us better utilisation and lower fuel costs both of which will be crucial for reducing the impact of bunker price increases. In 2012, Finnlines reduced its yearly consumption of bunkers by 28,000 tons. In 2013, another reduction of 14,500 tons was achieved. We have identified additional areas of improvement and hope to report further reductions in Our strategy is to study all available options and to choose tailor made solutions, at the right time, and on the right routes. As an international shipping company we have a duty to offer our clients intelligent transport solutions. At the same time, we will not forget our duties towards the environment and our stakeholders. Emanuele Grimaldi President and CEO 4

7 2013 was an intense year of great change. FINNLINES

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9 BUSINESS CONCEPT, VALUES AND STRATEGIC GOALS BUSINESS CONCEPT Finnlines promotes international commerce by providing efficient, highquality sea transport and port services, mainly to meet the requirements of the European industrial, commercial and transport sectors and private passengers. FINANCIAL GOALS Finnlines objective is to guarantee long-term profitability through high-quality operations, to generate added value for its shareholders and to maintain a healthy capital structure. The Board of Directors bases its annual dividend proposal on the Company s capital structure, future outlook, and investment and development needs. VALUES CUSTOMER FOCUS Our customers choose us thanks to our competence, expertise and reliability. Satisfied customers are the basis for Finnlines enduring success. By identifying its cargo customers and passengers needs, the Company can continuously develop its service products and generate concrete added value for its customers. RESPONSIBILITY We adhere to the principles of sustainable development. Environmental responsibility forms part of our Company s everyday operations. We take safety issues into consideration in all our operations. PROFITABILITY We achieve our objectives. Through the quality of our business operations, we are able to guarantee long-term profitability and generate added value. EMPLOYEE SATISFACTION Finnlines is a reliable and motivating employer, which treats its employees with fairness and equality, rewarding the merit. STRATEGIC GOALS A stronger position in the Baltic Sea and the North Sea cargo traffic We invest in the operational efficiency of our current transport areas. We will open new routes according to market opportunities. We are actively involved in the growing consolidation of the sector. We increase Group-wide network synergies beyond the core of today. A stronger position in the Baltic Sea passenger traffic We offer quick and effortless travel between Finland, Sweden, Germany and Russia to our passengers on our large and efficient ro-pax vessels. A stronger position in Russian freight traffic We are the leading shipping company in transit traffic. We actively develop and market direct transport routes between Central Europe and Russian Baltic ports. Growing profitability We strive to improve our productivity. One of the main ways of doing this is to focus on routes where the vessels capacity utilization is as high as possible in both directions. We will increase the efficiency of our operational systems and information management. We take proper care of environmental and safety issues. We invest in staff competence. FINNLINES

10 BUSINESS ENVIRONMENT FLEET During 2013, both long-term freight contracts and overall adjustments of capacity resulted in changes in Finnlines fleet. At the end of the year, the total capacity of the fleet was 75,400 lane metres, of which 37,300 metres in ro-pax ferries and 38,100 metres in ro-ro vessels. In the summer 2013, MS Misana and MS Misida were time chartered and began operating in the North Sea traffic. MS Translubeca that had been chartered out earlier was sold to an external buyer in late MS Transeuropa and MS Europalink were sold during the year to the parent company Grimaldi. In addition, MS Finnarrow was chartered to the Grimaldi Group in the second quarter and MS Finnsailor was chartered out at the end of The average age of the Group s vessels was about 10 years. ROUTE NETWORK All in all, there were about 20 departures a week from Finland to Germany and vice versa including the daily HansaLink service, a combined freight and passenger service between Helsinki and Travemünde. A frequency of 3/7 was adopted for the service between Rostock and Helsinki instead of the previous 2/7, and a new twice-a-week service was created among Aarhus and Rostock. In addition to the previous two weekly departures between Gdynia in Poland and Helsinki in Finland, another departure from Rauma to Gdynia was added to the Poland service. From St. Petersburg, Russia, there were three departures a week to Finland and from there onward either to Belgium and Spain, to Great Britain and the Netherlands or to Germany. In addition, there was one weekly departure from France to Russia. There was a weekly connection between Finland and France and France and Spain as well. Between Great Britain and the Benelux there was a sailing once a week as well as between Great Britain and Russia. From Finland to Great Britain and vice versa there were two weekly departures. Spanish traffic expanded during 2013 as well. Now there are three ports of call in Spain (Bilbao, El Ferrol and Santander), and there are connections twice a week to Belgium and Finland and back. Russia and Spain are connected by a regular service calling weekly both ends. Belgium has one weekly departure to Russia, and two weekly departures to Finland and Spain. The Netherlands have a weekly service to Russia once and a bi-weekly service to Finland. During 2013 Finnlink service added a stop over to Långnäs port in Åland, which is now served from/to both Naantali and Kapellskär. The Åland service paved the way also to the start-up of a duty free shop activity onboard. NordöLink has three daily departures between Malmö and Travemünde, in both directions, except on Mondays and Sundays when there are two. TRE, TransRussiaExpress, has a weekly sailing between St. Petersburg and Lübeck and vice versa. 8

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12 SHIPPING AND SEA TRANSPORT SERVICES Finnlines is one of the industry s leading players in the Baltic Sea, the North Sea and the Bay of Biscay. A strong position is based on outstanding service and service concepts based on customer needs. High frequency, cargo capacity and information services offered by Finnlines contribute to flexibility, reliability and predictability to customers. Shipping and Sea Transport segment revenue totalled (574.8 in 2012) million, and it employed 1,388 (1,518) people at the end of the year. During January December, there were a total of about 632 thousand (628 thousand) cargo units, 66 thousand (72 thousand) cars (not including passengers cars) and 2,248 thousand (2,102 thousand) tons of freight not possible to measure in units. In addition, some 556 thousand (598 thousand) private and commercial passengers were transported. Generally the slightly unstable economic environment in Europe as well as the volatility of the transport market affected the transported cargo volumes negatively. However, Finnlines relative competitive position strengthened during 2013 in the entire area of operations, particularly in the North Sea, but also in the Finland Germany service, especially on the HansaLink traffic where the cargo volumes increased by 7 per cent compared to the previous year. FINNLINES, THE BALTIC SEA AND THE NORTH SEA SERVICES The new, long-term agreements of industrial cargo allowed for the opening of new connections in both the Baltic Sea and the North Sea. In the North Sea region a new connection was opened to Radicatel in France, as well as to Santander in Spain. From Radicatel there are connections to Helsinki, Kotka and Rauma as well as to St. Petersburg. From Santander cargoes are transported to Finland (Rauma, Helsinki, Kotka), to Belgium (Antwerp) and to Russia (St. Petersburg). In the Baltic Sea area a connection was opened from Rauma to Gdynia, and from Gdynia to Hull. Connections were also created between Western Finland port of Uusikaupunki with German ports of Travemünde, Lübeck and Bremerhaven and vice versa. At the end of the year, the frequency of Helsinki Rostock service was increased from 2/7 to 3/7 and a new Aarhus Rostock 2/7 service was created. a total of 19 weekly departures in each direction. The fast eighthour voyage and the service s schedule, tailored to the needs of freight customers, have maintained the competitiveness of the route. At the beginning of October, the vessels MS Finneagle and MS Finnfellow started to call at the port of Långnäs in the Åland islands once per weekday, and duty-free shopping onboard was introduced at the same time. Passenger traffic continued with three vessels, the main target group being touring cars and caravan passengers. The line s number of passengers was 8.6 per cent higher than the year before. NORDÖLINK NordöLink runs a ro-pax service between Malmö, Sweden and Travemünde, Germany. The four vessels, MS Finnpartner, MS Finntrader, MS Nordlink and MS Finnclipper, made 19 weekly departures in both directions with an average intake capacity of about 115,000 lane metres per week. The non-freight passenger traffic s turnover continued its positive development and improved by 1.6 per cent. Further investment in onboard services and facilities along with a stronger canvassing activity of the tourism industry are planned to further improve the result of the line. TRANSRUSSIAEXPRESS TransRussiaExpress (TRE) runs a regular direct ro-pax liner service between Germany and Russia (Lübeck St. Petersburg), offering, until the end of October 2013, two weekly departures in each direction with the modern ro-pax ships MS Transrussia and MS Finntrader; MS Finnpartner and MS Finnclipper are deployed in a weekly rotation from NordöLink. With the weak Russian market development in 2013, the calls at Sassnitz and Ventspils have been suspended, while the port of Kotka is called at westbound to create Group synergies with Germany ro-ro traffic. FINNLINK FinnLink, between Naantali, Finland and Kapellskär, Sweden operates mainly with two Clipper-class ro-pax vessels (MS Finnfellow and MS Finneagle) and one smaller ro-pax vessel (MS Finnsailor). These vessels served unitised cargo traffic with INTERCARRIERS Intercarriers, in which Finnlines holds a 78.5 per cent stake, offered small-tonnage traffic services from ports in Lake Saimaa and some Russian inland ports to various parts of Europe. 10

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15 PASSENGER SERVICES With its 12 ro-pax vessels, operating between ten ports in four countries, Finnlines has established its position as an important provider of passenger services in the Baltic Sea. The fleet re-arrangements between the lines and the changes in traffic patterns during 2013 slightly cut the available passenger capacity, and the total number of passengers transported on all routes declined (private and commercial equally) by seven per cent to 556,000 (598,000 in 2012) passengers. New customer segments were attracted to the services, the business especially in Sweden and Russia developed well and the outcome of the total turnover of the passenger business was satisfactory. Projects were initiated in 2013 to further develop ebooking, the passenger reservation system, which was started up in The passenger website is also undergoing a continuous improvement process to meet the consumer expectations, and the channels for interaction with consumers were also expanded into social media in the main markets. To ensure favourable development of the business, customer satisfaction of the passengers is constantly monitored. In 2013, the surveys again showed encouraging results: 94 per cent of the respondents want to travel again with Finnlines. The onboard passenger concept on all lines is continuously being developed further in close collaboration with the personnel onboard in order to maintain high customer satisfaction levels and experience. A new passenger market segment was opened through the development of the Naantali Kapellskär line. As of October 2013, the daytime sailings call at the port of Långnäs in Åland. This opens new business opportunities in both ticket revenue and onboard tax free sales. FINNLINES

16 PORT OPERATIONS The Group s port operations are handled by Finnsteve companies (Finnsteve, Containersteve and FS-Terminals). Finnsteve companies are a major port operator focused on unitised cargo services required by regular liner traffic in the ports of Helsinki, Turku, Naantali and Kotka. Helsinki is Finland s most important export and import port for unitised goods, while Turku and Naantali have the fastest sea connections to Sweden. The port of Kotka specialises in warehousing and container stuffing. Finnsteve s subsidiary FL Port Services Ltd took care of the mooring of all vessels entering the port of Helsinki and the harbour internal traffic until the end of In Helsinki/Vuosaari and Turku, the Company provides ro-ro services, container terminal and depot services as well as export terminal services, and in Kotka container stuffing and loading of pulp to conventional vessels. In 2013, Finnlines Port Operations generated revenues of EUR 50.1 (58.5 in 2012) million and employed 452 (510) people at year-end. The Port Operations unit suffered from low volumes and keen competition. During 2013, employee adaptation negotiations were held in Helsinki and Turku. PORT OPERATIONS IN HELSINKI The Vuosaari Harbour, which was opened at the end of 2008, has proved to be an efficient world-class port with its modern and advanced infrastructure. The Company s four container cranes have sufficient capacity and power to cope easily with future growth in container volumes. The export terminals allow cargo handling in all weather conditions, while the import terminal in the logistics area has capacity for diversifying and increasing the provision of supplementary services. The labour negotiations held in 2013 resulted in layoffs of a considerable number of workers. HELSINKI VOLUME DEVELOPMENT The overall cargo volumes handled by Finnsteve companies in the Vuosaari Harbour decreased from the previous year and the price level of some services was still somewhat unsatisfactory due to the tough competitive situation in the port. In 2013, the total cargo throughput in the port of Helsinki decreased 2.7 per cent to a volume of 10.5 million tons, compared to the 2012 volumes. Unitised export traffic decreased by 1.3 per cent to 4.9 million tons and import traffic by 4.3 per cent to 4.7 million tons. Trailers and lorries decreased by 3.1 per cent to 484,780 units. Container traffic grew by 0.3 per cent up to 405,930 TEUs. PORT OPERATIONS IN TURKU, NAANTALI AND KOTKA The Company s operations covered the West Harbour, Pansio Harbour, Base Harbour and the port of Naantali. During the year under review, the volumes of cargo handled by the Company decreased from the previous year. The labour negotiations held at the year-end 2013 in Turku resulted in layoffs of a considerable number of workers. In 2013, the total cargo throughput in the port of Turku decreased 3.8 per cent to a volume of 2.6 million tons, in comparison to the volumes in Container export and import traffic decreased by 70.5 per cent to 2,970 TEUs, thus representing only a small part of the total cargo throughput. Trailers and lorries, however, grew by 8.4 per cent up to 120,610 units in The Company s Naantali operations provided services to the Group s FinnLink traffic between Naantali, Långnäs and Kapellskär. The business in Kotka is concentrated on warehousing, container stuffing and loading of pulp to conventional vessels. 14

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19 SAFETY AND ENVIRONMENT The objective of Finnlines safety and environmental policy is to provide safe, top-quality services while making efforts to minimise the environmental impacts in every aspect of operations. The environmental management system encompasses programmes and practices to minimise the environmental effects of operations. In comparison with other transport modes, shipping is energyefficient, with lower CO 2 emissions. Transferring the carriage of goods from road to sea also reduces congestion and noise on roads. SAFETY AND SECURITY Safety is one of the most important environmental aspects in shipping. The International Safety Management Code (ISM Code), which contains requirements for the safe operation of ships and for pollution prevention, has been mandatory on Finnish- and Swedish-flagged passenger vessels since 1996 and on cargo vessels since All vessels and port facilities also comply with the requirements of the International Ship and Port Facility Security (ISPS) Code. The vessels are regularly inspected and audited by the maritime administration and classification societies. Internal audits are held every year. To be prepared for safety and environmental risks, vessels continued to hold regular drills both in-house and with authorities, such as the coast guard, border guard and city rescue departments. Occupational safety and health, which entails maintenance of health, prevention of injuries and illnesses, and riskless use of work equipment, is an important part of Finnlines operations. In 2013, inspections under the Maritime Labour Convention 2006 were carried out on Finnish-flagged vessels. The purpose of the Convention is to safeguard that seafarers are provided with decent working and living conditions. In Sweden, the inspections will be carried out during In ports, stevedoring companies have safety systems, including communication and contingency plans in case of an accident. Ports are equipped to respond to oil and chemical spills. ENVIRONMENTAL CERTIFICATION A certified environmental system provides a tool to monitor and measure the impact of all environment-related operations and services. The system will also guarantee that the environmental performance unconditionally complies with relevant legislation and regulations. In 2013, the environmental certificate, which complies with the ISO :2004 standard, was renewed, covering management of a total of 20 vessels. STAKEHOLDERS In environmental and safety matters, Finnlines most important stakeholders are the flag, port and host state administration, owners, customers, port operators and subcontractors, as well as the inhabitants of harbour and fairway areas. Finnlines is represented at the technical and environmental committees under the Swedish and Finnish Shipowners Associations. As part of the Alg@line co-operation, which is co-ordinated by the Finnish Environment Institute, a device for monitoring the conditions of the Baltic Sea and the Gulf of Finland has been installed on MS Finnmaid and MS Finnsea. LEGISLATION Shipping is governed by international, regional and national regulations. The International Maritime Organisation (IMO) manages international legislation on safety and environmental matters. The MARPOL 73/78 Convention contains regulations on the disposal of waste and sewage into the sea, and on the prevention of air emissions. The SOLAS Convention regulates maritime safety matters, including ship construction, life-saving arrangements and navigation. The Helsinki Commission (HELCOM) has issued regional recommendations for the shipping industry. The Company s port operations comply with national legislation. ENERGY CONSUMPTION AND ATMOSPHERE EMISSIONS Finnlines operates mainly in the Emissions Control Areas, i.e. the Baltic Sea, North Sea and English Channel where the emission regulations are stricter than globally. Today, the sulphur content limit for heavy fuel oil is 1.0 per cent but the limit will decrease to 0.1 per cent in 2015 in accordance with the MARPOL Convention. Today s global limit is 3.5 per cent but the plan is to decrease it to 0.5 percent in To comply with the oncoming MARPOL rules, Finnlines has been looking at exhaust scrubber technology which will enable use of heavy fuel oil in the future. The other option for our ships is to run on marine gas oil, which will require modification of fuel oil systems. In port, power is normally generated using auxiliary engines. There is a maximum 0.1 per cent sulphur limit on all marine fuel used in EU ports while the ship is at berth for more than two hours. Finnlines optimises its transports, routes and timetables to achieve the highest possible capacity utilisation, which minimises the environmental stress per transported cargo unit. Fuel consumption can be reduced by optimising route, speed, load, and engine mode. To improve ships fuel economy, a voyage planning programme, Onboard Napa Power, is in use on MS Finnmaid. The programme includes a speed pilot function, which adjusts the speed in accordance with the plan. Enirams Dynamic Trim Assistant has been installed on MS Finnlady. The programme enables the crew to sail in the optimal trim. >> FINNLINES

20 SAFETY AND ENVIRONMENT (CONTINUED) Finnlines newest ro-ro ships have been fitted with modern bulb rudders, which have reduced fuel consumption compared with sister vessels. The majority of Finnlines ships have established a Ship Energy Efficiency Management Plan (SEEMP), the purpose of which is to identify energy-saving measures and to establish practices to improve the energy efficiency of a ship s operation. In 2013, Finnlines vessel traffic consumed 352,600 tons of heavy fuel oil and diesel oil, representing a decrease of around 4 per cent compared with WASTE AND SEWAGE In accordance with the EU directive on ship-generated waste, solid waste and oily water are included in the no special fee system. The aim is to stop illegal discharges at sea by requiring all ships to deliver their waste to port reception facilities. All ships calling at a port must pay for waste reception costs whether they have anything to deliver or not. Ships engaged in scheduled traffic with frequent port calls may be exempted from this directive if they have made alternative arrangements with competent companies. Finnlines has its own contracts with waste management companies. The main recyclable waste types generated on board include energy waste, bio waste, glass, paper, cardboard, and metal. Hazardous waste, including oil waste, oily filters, paint, and electronic scrap, is separated and taken to a designated container in port. MARPOL contains restrictions concerning black water, i.e. toilet water. Finnlines ro-pax vessels send black water to onshore municipal sewage systems whenever they are accessible. Tank vehicles are used where reception facilities are not provided. There are no restrictions on the discharge of grey water, i.e. water from kitchens and showers, but Finnlines pumps grey water to the shore-based sewage system whenever it is available. Cargo ships are equipped with sewage treatment plants approved by the flag-state administration. After treatment, the remaining slurry is taken ashore. OTHER ENVIRONMENTAL ASPECTS Oily waste water, bilge water, is generated in engine rooms. Bilge water is separated in separators and the remaining sludge is always taken ashore. The limit for the oil content of water that may be discharged into the sea is 15 ppm but many ships in our fleet have more efficient separators. Some bilge water is also pumped ashore. Organisms attached to the ship s hull slow the ship down, increasing fuel consumption and air emissions. The underwater hulls are brushed and cleaned at regular intervals. As a rule, the underwater hulls of Finnlines own vessels are painted with paints that do not give off toxic substances into the sea. Ships ballast water may transfer from one location to another species of sea life that are ecologically harmful when released into a non-native environment. At the beginning of December 2013, the Ballast Water Management Convention had been signed by 38 contracting states, representing per cent of world tonnage. The entry into force criteria for the number of countries (30) has been well met, but the requirement of 35 per cent world tonnage has not been attained. After entry into force, the ships will have to exchange ballast water or install a treatment plant after a transition period. Other options are to pump ballast water to a reception facility ashore or to use fresh water as ballast water. Finnlines has been looking at efficient ballast water treatment systems for its ships. ENVIRONMENTAL ASPECTS IN PORT OPERATIONS Being aware of their environmental effects and responsibilities, Finnsteve companies follow the principles of sustainable development. Finnsteve takes environmental aspects into consideration when making investments and when planning and steering its operations. The focus is on enhancing energy savings and on reducing air emissions and waste generation in processes, in storage operations and maintenance of machines and properties. Finnsteve companies hold a valid ISO environmental certificate and an ISO 9001 quality certificate. In 2013, the fuel consumption of the port operations totalled some 990 tons, which includes the operations in Helsinki, Turku, Naantali and Kotka, a decrease of 24 per cent compared with

21 HUMAN RESOURCES A SAFE EMPLOYER We want to be a workplace with satisfied staff as that is a winwin situation for our employees and our customers. As we see it, equality and a positive working environment are essential. SAFETY FIRST EVERY TIME At Finnlines safety comes first. We work on safety issues in various ways, including carrying out risk analyses and focusing on day-to-day safety. Our employees receive training on the subject. In 2013, the focus of personnel development was on operative and safety-related issues, especially with regard to sea personnel. Focus areas in Sweden and Finland for human resource development are safety, competence maintenance and development, as well as drills for emergency situations. Safety and security training included firefighting, crowd and crisis management, and handling of dangerous goods. On shore, all employees were encouraged to develop their competences through on-the-job training and job rotation. As for career development, the Group promotes and develops high-end management skills mainly from internal resources to allow career development and personal growth. PERSONNEL CHANGES IN 2013 The Group s port operations suffered from low cargo volumes and keen competition which impacted Finnlines human resources in The number of personnel on shore (office staff and stevedores) was adjusted. During 2013, employee adaptation negotiations were held in Finnsteve companies (Finnsteve Oy Ab, Containersteve Oy Ab, FS-Terminals Oy Ab and FL Port Services Oy Ab) in both Helsinki and Turku. The number of sea personnel decreased due to selling of two vessels and chartering out of a third one. During 2013, the average number of employees in the Finnlines Group was 1,861 (2,023 in 2012). At the end of 2013, Finnlines had about 1,806 (2,009) employees in total, of which 898 (963) on shore and 908 (1,046) on board. The total number of persons employed by the Group decreases to 1,661 persons as a result of the above mentioned actions. This development will positively impact personnel productivity and will contribute maintaining Finnlines as a leading short sea shipping company in the Baltic and North Sea. RECRUITMENT According to Finnlines Human Resources policy, vacant positions are mainly advertised internally, which improves job rotation as well as job satisfaction and develops employee competence. In 2013, external recruitment was minimised and job redesign emphasised. Highly qualified managers were hired from outside the Company in order to acquire additional management skills in specific sectors. >> FINNLINES

22 HUMAN RESOURCES (CONTINUED) Key figures Average number of employees 1,861 2,023 Revenue/employee, EUR 302, ,201 Personnel expenses/employee, EUR 58,099 57,118 Operating profit/employee, EUR 6,848 8,878 Employee turnover, % Absences of personnel, change % 15,4 10 Training days, total 1,300 2,343 Average number of employees per business area Shore-based personnel Shipping and Sea Transport Services Port Operations Sea personnel 943 1,066 Continuing operations, total 1,861 2,023 Total 1,861 2,023 As of 31 December 2013, there were 898 shore-based personnel and 908 sea personnel for a total of 1,806. As of 31 December 2012, there were 963 shore-based personnel and 1,046 sea personnel for a total 2,009. Employee categories Office staff 28% 26% Sea personnel 50% 52% Stevedores 22% 22% Gender distribution Shipping Port personnel Sea operations Shipping Port personnel Sea operations Female 48% 4% 21% 48% 4% 21% Male 52% 96% 79% 52% 96% 79% Personnel by country Finland 69% 56% Sweden 22% 36% Germany 6% 6% Other 2% 2% The average age of Finnlines personnel, years The average duration of employment, years 5 5 Personnel profit and loss account, (EUR 1,000) Revenue 563, ,329 Personnel expenses Real working time expenses 77,255 85,234 Personnel renewal (holidays, recruitment) 24,888 22,158 Personnel development Personnel benefits and obligations 5,788 7,724 Total personnel expenses 108, ,550 Other operating expenses 442, ,819 Profit before other operating income (operating profit) 12,747 17,961 Other income from operations 5,329 5,702 Net operating profit 18,075 23,663 Quarterly figures Continuing operations I/2013 II/2013 I/2012 II/2012 1,906 1,894 1,991 2,002 III/2013 IV/2013 III/2012 IV/2012 1,887 1,861 2,057 2,023 20

23 FINANCIAL STATEMENTS 2013

24 BOARD OF DIRECTORS REPORT FINNLINES BUSINESS Finnlines is one of the largest North-European liner shipping companies, providing sea transport services mainly in the Baltic and the North Sea. In addition to freight, the Company s ro-pax vessels carry passengers between five countries and eleven ports. The Company also provides port services in Helsinki, Turku and Kotka. The Company has subsidiaries in Germany, Belgium, Great Britain, Sweden, Denmark, and Poland. GENERAL MARKET DEVELOPMENT Based on the statistics by the Finnish Transport Agency for January December, the Finnish seaborne imports carried in container, lorry and trailer units decreased by 3 per cent whereas exports increased by 6 per cent (measured in tons) compared to the same period in According to the statistics published by Shippax for January December, trailer and lorry volumes transported by sea between Southern Sweden and Germany increased by 4 per cent compared to During the same period, private and commercial passenger traffic between Finland and Sweden decreased by 1 per cent compared to Between Finland and Germany the corresponding traffic decreased by 15 per cent (Finnish Transport Agency). FINNLINES TRAFFIC In the first quarter, the last of six ro-ro newbuildings (MS Finnwave) entered service. The vessel flies the Finnish flag. In order to adapt to the current market situation, Finnlines chartered out MS Finnarrow to the Grimaldi Group at market price in the second quarter. In the third quarter, Finnlines started new services in the Baltic Sea and the North Sea. The expansion of the liner service network is a result of long-term contracts made with key customers. Due to changes in the market circumstances, Finnlines restructured its vessel capacity and updated schedules in the service with Aarhus and Rostock during the last quarter. The newest ro-ro vessels in the Finnlines fleet were operating two sailings a week in both directions linking Aarhus and Helsinki. At the same time, when rescheduling this service, a new twice weekly connection between Aarhus and Rostock was introduced. In addition, Finnlines sold the vessels MS Translubeca and MS Transeuropa. MS Transeuropa was sold to the Grimaldi Group at market price of EUR 27 million, which is slightly above the book value of the vessel. MS Transrussia entered the Helsinki Rostock route due to the sale of MS Transeuropa. MS Translubeca was sold to an external party at market price of EUR 11.6 million, which is also slightly above book value of the vessel. During the fourth quarter, Finnlines operated on average 24 (24 in 2012) vessels in its own traffic. The cargo volumes transported during January December totalled approximately 632 thousand (628 thousand) cargo units, 66 thousand (72 thousand) cars (not including passengers cars) and 2,248 thousand (2,102 thousand) tons of freight not possible to measure in units. In addition, some 556 thousand (598 thousand) private and commercial passengers were transported. FINANCIAL RESULTS The lowering of the corporate tax rate from 24.5 per cent to 20 per cent at the end of the fourth quarter had a EUR 9.4 million non-recurring positive effect on the result for the reporting period January December 2013 and also on the result for October December The Finnlines Group recorded revenue totalling EUR (609.3) million, a decrease of 7.5 per cent compared to the same period in Shipping and Sea Transport Services generated revenue amounting to EUR (574.8) million and Port Operations EUR 50.1 (58.5) million. The internal revenue between the segments was EUR 25.1 (24.0) million. Result before interest, taxes, depreciation and amortisation (EBITDA) was EUR 83.7 (89.8) million, a decrease of 6.8 per cent. Result before interest and taxes (EBIT) was EUR 18.1 (23.7) million. The result for 2013 includes a non-recurring cost item of about EUR 1.0 million related to general increases of the collective agreement and a sales profit of EUR 3.0 million from the sales of MS Europalink, MS Transeuropa and MS Translubeca. The result for 2012 includes a non-recurring compensation of EUR 3.4 million from the Jinling shipyard and one-time cost items amounting to EUR 3.3 million mainly relating to the arrangements of leased property and settlements with the personnel. The comparable result before interest and taxes (EBIT) adjusted with above mentioned items was EUR 16.1 (23.6) million. The result is affected by the seasonality of the cargo volumes, which are typically on a lower level at the beginning of the year. The number of passengers is also modest during the winter period compared to the summer season. Financial income was EUR 0.5 (0.7) million and financial expenses totalled EUR 25.3 (26.0) million. Result for the reporting period was EUR 6.0 (-0.1) million and earnings per share (EPS) were EUR 0.12 (0.00). The most important business and share related key indicators are presented in the Five-Year Key Figures on page 33. STATEMENT OF FINANCIAL POSITION, FINANCING AND CASH-FLOW Interest-bearing debt decreased by EUR million and amounted to EUR (889.4) million. The equity ratio calculated from the balance sheet improved to 35.7 per cent (29.0) and gearing dropped to per cent (204.9). Due to the expansion of liner service network, vessel lease commitments increased by EUR 17.9 million to EUR 24.7 million compared to the end of December At the end of the period, cash and deposits together with unused committed working capital credits amounted to EUR 65.9 (41.3) million. The Board of Directors of Finnlines Plc decided on 7 May 2013, based on the authorisation granted at the Annual General Meeting on 16 April 2013, on a rights issue, in which the Company offered a maximum of 4,682,104 new shares to be subscribed by the Company s existing shareholders. All offered shares were subscribed for in the rights issue completed at the end of May. The net proceeds raised by Finnlines in the rights issue were approximately EUR 28.4 million which were used to strengthen the Company s capital structure. 22

25 In April, Finnlines port subsidiaries sold four container cranes to a financing company and rented them back with a five-year financing lease contract. This arrangement released EUR 15 million working capital to the Group. During the latter half of the year, Finnlines sold two vessels, MS Europalink and MS Transeuropa, to the Grimaldi Group and MS Translubeca to an external party for a total amount of EUR 124 million. Net cash generated from operating activities after investing activities improved markedly and was EUR (-25.0) million. CAPITAL EXPENDITURE Finnlines Group s gross capital expenditure in the reporting period totalled EUR 10.1 (67.1) million. Total depreciation amounted to EUR 65.6 (66.1) million. The investments consist of normal replacement costs of fixed assets and accrued dry-docking cost of ships. The investment programme of six ro-ro newbuildings was completed in 2012 and there are no decisions on any new vessel investments. PERSONNEL The Group employed an average of 1,861 (2,023) persons during the period, consisting of 918 (957) employees on shore and 943 (1,066) persons at sea. The number of employees at the end of the year were 1,806 (2,009) in total, of which 898 (963) on shore and 908 (1,046) at sea. The total number of persons employed by the Group will decrease to 1,661 persons as a result of the actions mentioned below. In the first quarter, the Finnsteve companies started statutory employee co-operation negotiations in Helsinki with all personnel groups due to the loss-making business in the ports. As a result of the negotiations, the number of the port personnel decreased by 100 in the Finnsteve companies (Finnsteve Oy Ab, Containersteve Oy Ab, FS-Terminals Oy Ab and FL Port Services Oy Ab) in In the fourth quarter, the Finnsteve companies started new statutory employee co-operation negotiations in Turku with all personnel groups due to the loss-making business in the port. As a result of the negotiations, the number of port personnel decreased by 61 employees. In Helsinki, at FL Port Services Oy Ab the statutory employee co-operation negotiations ended in the dismissal of 21 employees and closing down the company. The number of the sea personnel decreased due to selling of two vessels and chartering out of a third one. The personnel expenses (including social costs) for the reporting period were EUR (109.0) million. The personnel costs are specified in more detail in the Notes to the Consolidated Financial Statements, in Note 9. Personnel Costs. GROUP STRUCTURE Finnlines Plc is a Finnish listed company. At the end of the reporting period, the Group consisted of the parent company and 25 subsidiaries. Finnlines is part of the Italian Grimaldi Group, which is a global logistics group specialising in maritime transport of cars, rolling cargo, containers and passengers. The Grimaldi Group comprises seven shipping companies, including Finnlines, Atlantic Container Line (ACL), Malta Motorways of the Sea (MMS) and Minoan Lines. With a fleet of about 100 vessels, the Group provides maritime transport services for rolling cargo and containers between North Europe, the Mediterranean, the Baltic Sea, West Africa, North and South America. It also offers passenger services within the Mediterranean and Baltic Sea. With per cent (at 31 December 2013) of the shares, the Grimaldi Group is the biggest shareholder in Finnlines Plc. RESEARCH AND DEVELOPMENT The aim of Finnlines' research and development work is to find and introduce new practical models and operating methods, which enable the Company to meet customer requirements in a more sustainable and cost-efficient way. In 2013, the focus was on putting newbuildings into service and on optimisation of the traffic patterns with the renewed fleet. The Company is actively developing the safety of cargo handling methods. Together with a group of vocational education providers, universities and cargo securing experts in Finland, Germany, Italy and Sweden, Finnlines participated in the Caring project. The project was partly financed by the Leonardo da Vinci programme of the European Union. The target was to improve the level of cargo securing to prevent cargo damages on road, rail, at sea and in the air. The three-year project, which produced up-to-date learning and presentation material, was completed during In 2013, the Company continued the renewal work of its operative IT systems for the cargo traffics. The target is to harmonise the systems within the Finnlines Group and between Finnlines and other services within the Grimaldi Group Network. Implementation of the system to different services will take place as from 2014 onwards. THE FINNLINES SHARE The Company s registered share capital on 31 December 2013 was EUR 103,006,282 divided into 51,503,141 shares. A total of 2.2 (1.4) million shares were traded on the NASDAQ OMX Helsinki during the period. The market capitalisation of the Company s stock at the end of December was EUR (365.2) million. Earnings per share (EPS) were EUR 0.12 (0.00). Shareholders equity per share was EUR 8.98 (9.14). At the end of the year, the Grimaldi Group s holding and share of votes in Finnlines was per cent. The shares, shareholders and management s holding are dealt with in more detail in the Notes to the Financial Statements, in Note 37. Shares and Shareholders. DECISIONS TAKEN BY THE ANNUAL GENERAL MEETING Finnlines Plc s Annual General Meeting was held in Helsinki on 16 April The Annual General Meeting of Finnlines Plc approved the Financial Statements and discharged the members of the Board of Directors and President and CEO from liability for the financial year It was decided to accept the proposal of the Board of Directors that no dividend shall be paid for The meeting decided that the number of Board Members be seven. All of the current Board Members were re-elected; Mr Emanuele Grimaldi, Mr Gianluca Grimaldi, Mr Diego Pacella, Mr Olav K. Rakkenes, Mr Jon-Aksel Torgersen, Mr Christer Backman and Ms Tiina Bäckman. The yearly compensation to the Board will remain unchanged as follows: the Chairman EUR 50,000, the Vice-Chairman EUR 40,000 and the Member EUR 30,000. The Annual General Meeting elected KPMG Oy Ab as the Company's auditor for the fiscal year It was decided that the external auditors will be reimbursed according to invoice. >> FINNLINES