Hf. Eimskipafelag Islands announces a profit warning due to foreseeable charges during Q4

Eimskip's loan guarantees for XL booked
In September 2008, Eimskip announced that guarantees amounting to approximately
EUR 207m  would be called due to the bankruptcy of XL Leisure in the UK. Some
uncertainty has surrounded the claim after Samson eignarhaldsfélag ehf. was
declared bankrupt. As a result, Eimskip will expense the claim during the
fourth quarter. However, the company will continue to negotiate an agreement
relating to this claim with its owner. 
 
Other guarantees and charges
In addition to charges relating to the XL guarantee, charges are anticipated
due to asset impairments, first and foremost involving goodwill for cold
storage operations in Europe, which are currently being sold. The company's
annual accounts also record the impact of calls under guarantees of XL
aircraft. The amounts of the guarantees have yet to be finalised pending the
conclusion of negotiations with claimants. Finally, due to adverse exchange
rate movements, in particular the strengthening of the US dollar against the
Canadian dollar, exchange rate losses during the fourth quarter will be
considerably higher than anticipated. 

Until the annual audit is completed, and the asset impairments confirmed, it
remains unclear what the total charge with respect to impairment will be in the
fourth quarter. However, it is clear that the company's equity will be severely
reduced, with the charges relating to the XL guarantee being the principal
cause. 
 
Work continues on financial reorganisation
As previously stated, Eimskip has been working on the financial reorganisation
of the group over the past few months with the help of Icelandic and foreign
consultants. This work is expected to conclude during the first half of 2009.
The company has focused on selling a proportion of overseas assets not
connected with the core business of the company, with the goal of paying off
debts and decreasing financial costs. Eimskip is currently negotiating with its
main creditors to delay interest payments and instalments on loans in order to
protect the company´s cash position during the process of selling the assets. 
The response of creditors, in general, has been positive. 

Despite the extremely difficult economic circumstances in Iceland, Eimskip has
been successful in securing its liquidity position. 

It is anticipated that the sale of assets in North America will be completed by
the end of January or beginning of February 2009. The sale is expected to
significantly reduce the company's debt burden. 

Eimskip's core business is secure
Although the company's debt position is remains challenging and circumstances
the financial markets are difficult, the company's core business is doing well.
Adapting the company's operations to the decline in shipping to Iceland has
been successful. Over the past few weeks, the company has reduced the number of
vessels in operation, reducing the fleet serving Iceland from eleven to eight.
Other measures taken were to reduce the number of employees and reduce wages,
together with other reorganising activities. It is anticipated that these
measures will result in savings of up to ISK 2.4bn per year. The company's
liquidity position is good and Eimskip's core business is secure. The company
will continue to provide its customers with reliable and good services. 
 

For further information, contact Gylfi Sigfússon, CEO of Hf. Eimskipafélag
Íslands.