AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

And welcome to Tallink Grupp's webinar. Today, we are giving you a brief overview of the company and the ongoing public offering of the shares. [Operator Instructions] Now I would pass the microphone to Paavo Nõgene.

Good afternoon, everybody. My name is Paavo Nõgene. I'm the CEO of Tallink Grupp. 17 months ago, started the pandemic, around the world. And now 17 months later, we still think that there are in place, different restrictions in different part of the world, as well in the Baltic Sea region where Tallink Grupp is operating. When the pandemic started, our first 2 priorities were to cut the costs as much as possible, and at the same time, work with liquidity to guarantee that we have enough liquidity to go through this crisis. And we didn't know how long this crisis will affect our business. We were predicting that we will see most probably better numbers in 2022. But as well, we say that as many of our previous customers came from different continents from the United States of America or from Asia, then recovering from these markets takes much longer time. We decided last year, beginning of April, that first, we will start discussions and negotiations with our current banks and financial institutions with who we have had very good cooperation throughout tens of years. And at the same time, we were in discussions with Estonian government and Finnish government to get either the direct loan from the governments or state guarantee for new loans. And we ended up -- that Government of Estonia decided to give direct loan and Government of Finland gave the state guarantee for Nordic Investment Bank loan. And from our financial partners, we gained EUR 60 million extra loans. Altogether, we received more than 200 -- or we received EUR 260 million new loans into the company. We are very -- we appreciate governments and our current partners and previous financial partners who understood that this pandemic came because -- something new to all the world, and it wasn't connected with the management work or things which has been done in the company that we ended up in such crisis. We also promised during that time that -- and we understood that in one moment, we would like to give opportunity to also to all our investors. We have more than 28,000 shareholders to invest into the company and to help the company to come through and come out from this crisis. But we decided that we are not going to do it last year because we saw that we need financial -- new financial instruments or loans much faster than it was possible due to last year via the stock exchange and asked our investors. So we have worked now same time with keeping company in operations with the cost base. We have worked with different new activities more with the charters and so on. And same time, we're ready to start to write the prospectus and come to our investors and give the opportunity to invest into the company during this pandemic period. Generally, we feel that -- and we have seen also during this summer that there are definitely needs for the traveling, different restrictions in different countries shows us also the different results. For example, if you're going back to the summer, we saw a very good interest in our Swedish market where we operate the domestic cruises and also the sea, nowadays that passengers and people from Sweden are more ready to travel and more freely travelling. At the same time in Finland, even in Finland are already 2.55 million people fully vaccinated. Direct [ orders ] from the from the government side is that if it's not urgent, then please do not travel yet. And at the same time, the government saying that when the Finland will reach vaccination rate around 90% from the 12-plus age population, then they're going to lift most of the restrictions and easier all the restrictions for future. But we're living in the world where everything change very fast. So we can for sure say that in which moment we will see more passengers from our Finnish market. Estonian market, doing well. We started our Tallinn-Stockholm route on 7th of July, and it was to us also a bit surprisingly good. We didn't predict so many passengers during this summer, but we're operating right now with one vessel, and we are satisfied with these results. But I will give word to Harri Hanschmidt, later on to, Margus Schults and Joonas Joost. They will go through the presentation. And at the same time, as already said, if you have any questions, we're happy to answer them. And from my point of view, I can say that all the team in Tallink Grupp working with the aim that we're coming out from this crisis stronger than we entered this crisis. And right now, we are on the way to reach it. So we hope that all our investors actually whose number has been doubled since the crisis started, will be happy also in the future for their investments as we haven't changed company's dividend policy, which is that when the financial results allows, we want to pay out a dividend at least EUR 0.05. But for sure, it takes now a bit time to get back to the situation where we were in beginning of 2020. But now I will give to Harri Hanschmidt.

Thank you, Paavo.

But before we go, just for the investors who are watching us, the recording, I would ask you to pause the recording and quickly go through the disclaimer text. And in general summary, I would make a note that the public offering is concluded in Estonia and Finland and the information is not to be distributed in U.S. or any other restricted markets. Go on Harri.

Thank you, Joonas. Hello. My name is Harri Hanschmidt. I'm a management board member for Tallink Grupp. Thank you for joining in for investor presentation. 3 weeks ago, we had a second quarter webinar and some of the topics -- or most of the topics we will be covering here are already actually once covered, but we will go over the information with the goal that you can actually ask all the questions about secondary public offering. But first, we start with a little bit of introduction to the company and the business overview. Tallink operates 2 very strong brands. And our business or who we are, is, we are the leading European provider of leisure and business travel and sea transportation services in the Baltic Sea region. And our vision is to be the market pioneer in Europe by offering excellence in leisure and business travel and sea transportation services. We own a fleet of 15 vessels. Today, these vessels are operating on 6 routes. One of the routes, the Riga-Stockholm route is currently suspended, but we are hoping to reopen this route next year as well. Some of the vessels are doing alternative charter work, and we will talk about this a little bit later. We also operate 4 hotels. The one hotel is closed this season, the Tallink Hotel Riga. Some of the KPIs in a regular year, our revenues are about EUR 950 million; past year, EUR 443 million, strongly affected by the corona crisis. And you can see that the second quarter this year was EUR 86 million. We served about 430,000 passengers in the second quarter this year. On a regular year, this number would be much closer to 3 million passengers. We transported about 92,000 cargo units, and we have a EUR 1.5 billion asset base. This is mainly the vessels. In the end of second quarter this year, we employed 4,300 employees. The company is quite well positioned to take in different types of crisis in shipping about every 10 or 20 years or once the crisis hits, it's always something new. The good thing is that our assets are mobile and quite flexible. We can temporarily stop the ships. We can charter the ships out, and we can search better routes or alternative routes, also temporary routes. The company has done a tremendous effort in reducing costs because we understood in this crisis, we need to become smaller and more flexible. Therefore, we had to reduce the personnel by about 45% in a very quick period. This in turn enables us much more flexibility and a more flexible personnel structure going forward. We also used some new business lines and ad hoc routes to keep business operational, to keep our very qualified personnel busy even if the demand was lower. So we had 6 new ad hoc routes between 2020 and 2021, a different special cruises to [indiscernible] and different destinations, mostly regarding Sweden. We continued our strategy to also build new Burger King restaurants and cater revenues from the mainland in Latvia, Lithuania and Estonia. And we built during this time, 10 Burger King restaurants with a goal to open about 40 restaurants throughout the Baltics. We also have webshop, and we can see that the webshop revenues during the crisis went up 6x. We are investing in the webshop technology and the people. It has a new team. And we hope that this webshop also performs well in the future and becomes also an important part of our business. Three of our vessels are chartered out. Atlantic Vision is on a long-term charter and Victoria I and Romantika are also right now chartered out. We have a solid liquidity buffer. And throughout the crisis, one of our main goals has been to keep sufficient liquidity. So at end of the second quarter, we had EUR 116 million of liquidity and the undrawn part was EUR 90 million additional liquidity from the Nordic Investment Bank loan. On the corporate governance side, Tallink has a supervisory board that consists of 7 members and the Chairman of Supervisory Board is Enn Pant and Management Board consists of 6 members with our Chairman of the Management Board, Paavo Nõgene. Our shareholder structure is the following: we have a principal shareholder, Infortar, with shareholding of 39%, and all other shareholders are financial shareholders with the largest being Baltic Cruises Holding with the combined shareholding of multiple accounts, about 22%. And further structure shareholder and the top 10 shareholders make up the biggest part after Infortar, then we have the institutional investors and retail investors. Our share price today is about EUR 0.60. We have about 29,000 shareholders, and this is combined on the Tallinn Nasdaq Stock Exchange and Helsinki Nasdaq Stock Exchange to the FDR program as well. We continue with the business overview. The crisis hit in March 2020. So January, February were quite regular for all the routes. After that, you can see this heat map of -- in March, we had limited capacity on Estonia-Finland and Finland-Sweden, and this has continued to this day. Estonia-Sweden and Latvia-Sweden were essentially closed down. And right now, we have opened with limited capacity, the Estonian-Sweden route and Latvia-Sweden route right now continues to be closed. Cargo operations were quite strong and it was very good that we were able to provide this possibility for uninterrupted cargo connections throughout the crisis that definitely helped the whole situation. The passenger numbers unfortunately, went down by quite a bit. So in 2020, Q1, we transported 1.5 million passengers. This year, only 270,000. And second quarter, this is already like-for-like, so we can see actually a little bit of a recovery because the restrictions were a little bit less. And as Paavo mentioned before, we are hoping that through this vaccination program, that is proceeding very well, actually already the restrictions will be lessened in Finland and Estonia and Sweden, and this will obviously help our business going forward, but we don't expect any very rapid changes. It's most likely going to be a gradual move. And cargo operations, we talked about that, more or less undisturbed. Our asset base is the ships. And fortunately, today, we have found work for most of the ships only Isabelle is right now inactive. Isabelle is typically on the Stockholm-Riga route. All other vessels are in operation. And we operate 4 hotels. Right now, the Riga hotel is closed, other hotels are operating. The demand is growing, especially on special events, like sports events and so forth, but obviously, it's quite sporadic, and the whole hotel business is also affected quite strongly by the corona crisis. And the key events that took place since the beginning of 2020 and up to mid-August this year, obviously, last year, the key event aside from the unfortunate COVID pandemic was the completion of all the prepayment installments for the new vessel MyStar and the construction of the vessel. In addition to investments into MyStar last year, a year ago, a secondhand cargo vessel, Sailor, was acquired, which is operating on the Paldiski-Kapellskär route. During the COVID year, we also were honoring the previously signed agreements and opened 8 new Burger King restaurants in the 3 Baltic states. And due to the COVID in 2020, the company also went through the various cost cutting and reorganization initiatives, boosted sales and significant growth in the webshop, underwent renovation in Tallink City Hotel and we're opening various new pop-up routes and special cruises. In the first half of '21, we've continued opening the Burger King restaurants and completed the Tallink City Hotel renovation and reopened the hotel in the end of June. Also this year, we restarted Tallink-Stockholm and Helsinki-Stockholm routes, which have been closed throughout the pandemic and added a new destination from Stockholm to use that. We've managed several short-term charter agreements, including Silja Europa, and also currently Victoria and Romantika, as mentioned earlier. And MyStar christening took place only recently, on the 12th of August. And recently, we also announced exit from the onshore fashion retail business after disposing shares in the Baltic Retail OÜ subsidiary. Now I could give the microphone to Margus Schults.

Good afternoon also from my side. My name is Margus Schults, and I'm a member of the Management Board and also here in Finland, Managing Director of Finnish subsidiary. So how all these changes in external business environment and also in our internal actions have affected our financials? So if we start to look first on geographical segments, and we have compared here 3 figures. First the Q2 of the normal year, 2019; then Q2 of first pandemic period when the big shock in March 2020 hit all of us; And then Q2 2021, where we have had a lot of different actions done on -- within our company. And for each geographical segment, we have published numbers of volumes, passengers and cargo volumes, then the number for revenue costs and the segment results. Basically, on Estonia and Finland during Q2, we had some passengers comparing to last year because last year, the last year the passenger traffic was totally forbidden by Finnish government. But during this year, Q2, we had allowed work-related travel. But of course, the volumes have been quite far from normal because all the free-time-related travel were not accepted by Q2, it was opened only in the beginning of July. Then between Finland and Sweden, we operated only Turku-Stockholm online. We did not operate Helsinki-Stockholm line. And also this Turku-Stockholm line was mostly, so to say, cargo-oriented because we had very few number of passengers, but cargo volumes were basically on a normal level. And of course, as we know, Finland is more or less in line where 80% of trade between Finland and other countries, both via sea, therefore, with Finnish government and Finnish government authority, Traficom, have decided to support Finland-Sweden traffic, with support measures in order to ensure that cargo units still can go every day between Finland and Sweden. So and Estonia-Sweden, we basically didn't have any passenger traffic there. We had only one cargo vessel operating during Q2 on this route and these few passengers are passenger with [indiscernible]. So this will be seen also on the volumes and revenue side. And Latvia-Sweden [indiscernible] operate at all during Q2 and, as I said, it was as we don't open this route during this year and the cost related to the Latvia-Sweden are related basically to layoff of vessels and layoff of our people. And the overall conclusion is that on all routes, we have somewhat higher number of passengers. The number of cargo units is quite stable. And of course, higher number of passengers means that we have more revenue. At the same time, we have been able to reduce cost on certain routes. On some routes, we have had some increase of costs. These are related also to the restart of operations because as we know that after a long time of layoff, we needed to make some maintenance work on our vessels. And on all routes, basically, the segment result was improving from last year. Then we have also a segment, Other, but I will come back to that on the next slide. So if we can go further. We have had also quite dramatic change in our revenue structure. In normal year, Q2 2019, you can see that more than half of our revenues came from restaurants and shop sales, onboard sales. Then about 1/4 from ticket sales, 12% from cargo and then rest have quite small amounts. But now, of course, since the number of passengers have decreased dramatically, we can see that share of cargo in revenues has been increased significantly. So last summer when passengers numbers were extremely small, it was 35%. and Q2 this year, cargo revenues were 27%, not because of cargo revenue was decreasing, but number of passengers went also higher revenue. Which is positive to say and highlight here is that, first of all, as I said, onboard sales has been strong, basically throughout the whole crisis. So the revenue -- onboard revenues per passenger -- the passenger has been much higher on all routes than in normal year, which means that we have had more loyal customers onboard our vessels and they have basically bought more things and things from our vessels. Cargo operations has been also increasing from last year, but they are still somewhat lower than in normal year. And this is related, of course, to the fact that we have less routes opened and less vessels in our normal operations. And the segment, Other, which is now has increased its share also somewhat, is basically including 3 items. One was -- one is Burger King restaurants, which are currently constantly opened from the beginning of last year. And of course, I think the results would be even better, but Q2 results have been affected by the fact that in some countries, shopping centers where the Burger King restaurants are located, they have been closed, and we have been able to only take home-delivery. Then as Harri mentioned, the webshops, and importance of webshop is also increasing quite significantly. And then we had also Silja Europa in June charted to U.K. for short-term charter. So the segment, Other, is of course, small at the moment, but we put quite a lot of focus to that, and we see that the growth numbers there have been 2 or even 3 point percentages. So we'll go further to debt structure and our liquidity. Then like Mr. Nõgene has said that, the first focus in this crisis have been to ensure our liquidity position and cash position. And we have been doing this quite successfully. We have currently different long-term loans in the amount of EUR 573 million, and this basically consists of 7 long-term loans with maturity 1 to 8 years. And we have also 2 facilities, which by the end of June, were agreed but not withdrawn. One was a Nordic Investment Bank loan backed with State of Finland guarantee. And from this facility, EUR 100 million, we still have not used by the end of June, EUR 90 million, and then also almost EUR 200 million facility for MyStar also have been signed, but not yet [indiscernible]. Then on top of that, we have been able to negotiate the overdraft. So currently, we have total EUR 135 million overdrafts, of which EUR 56 million was used by end of June and EUR 79 million not used. And then in order to ensure our liquidity during this coming year -- the crisis, we have also been able to defer some of our syndicate payments. And basically syndicate payments of totaling EUR 82 million have been deferred and added to the last payment of each respective loan facility. So these all have ensured for us a good liquidity position and ensures that our cash will be sufficient to also spend the forthcoming difficult times. And overall, I would just also say that we have a quite good balance sheet. I mean our liquidity, we have defined that it's in comfortable zone, and we don't see a major problem with that. If we look at development of liquidity during the crisis. If the next slide. Yes, thank you. Then basically on this slide we have summarized major actions, which increased our liquidity and decreased our liquidity basically from end of 2019. And you can see, like I mentioned, we have new -- last year, we negotiated new overdraft facilities. We had a different state support mechanism. I will refer to that from Estonian, Latvian, Finnish and Swedish states. We have had also EUR 100 million from KredEx or Estonia state direct loan and also a loan from the Nordic Investment Bank in amount of EUR 10 million. And then, of course, we had some kind of -- some financing costs and also investment was the last year were quite significant and this EUR 100 million investment cash flow is mostly, of course, related to the building of vessel MyStar, but also there have been also some other costs and -- investments, sorry, for the purchase of our cargo vessel Sailor and some other. And then in 2021, when the -- in first year, we basically see that the movement of cash has been smaller, and we have, for instance, the reduced on significantly, say, investment cash flow. And by the end of June, we had very strong and healthy cash position, EUR 117 million. And like I mentioned already, then we have still EUR 90 million undrawn, a loan from Nordic Investment Bank and then of course, proceeds EUR 30 million plus from forthcoming equity issue. And you can see that basically the equity issue, I'll also come back to that, the main purpose of equity is maybe not so much to ensure the liquidity, but maybe more to strengthen our capital position and also to show the commitment of our shareholders to development and future of the company. Next, please. And then the second -- I think it should be cost efficiency. Yes, thank you. Yes, and the second focus during the whole crisis on top of this liquidity management, of course, have been on our costs because the revenues are very unstable and also very unpredictable, then, of course, we have to reduce our cost. And here also, we have full year 2019 and 2020. You can see that already in 2020, we made significant cost reduction measurements in all categories that we have. But of course, a full effect were not reached, of course, some of the betterments like for instance, reduction of our staff, we are done only in the second half of 2020, and therefore, a full impact is seen only in 2021. But like I mentioned, we have been able to reduce significantly the cost in all categories. And if you want as a cost of sales, which is basically all operational costs, are higher than last year than basically this, like I mentioned, relating to operational vessels, the operations of that long layoff period and also, of course, the cost of fuel has been in this year somewhat higher. And of course, one of the costs which have quite significant is our staff and unfortunately, we have had to reduce it quite significant. So you can see that both onshore, onboard and hotel staff is basically half of the level which we used to have prior COVID times. But on a positive side, I think that this all-cost efficiency measurement we have done has also impact on our operations long term. We are now much more able to use our workforce more flexible. We have been even further developed our lean procedures and operations. And I think that the kind of crisis period is good from the sense that it has been able to -- us to focus on the key questions and key operations. And I think that it will also be one of the positive effects from this crisis in long term, not only in short-term, cost efficiency. And if we come to the support measures and as I mentioned, the support measures have been granted from different countries. Last year, the total number of different support measure was much higher. And of course, it is very, I think, right way because we all remember that there were big queues of trucks between -- on Polish, German borders, et cetera. So we have to really the risks, that in this part of work in Finland, in Estonia, there will be shortage of maybe consumer goods, maybe it seems, and so on. So I think that the very quick reaction of different states and state authorities ensure really that the cargo traffic, which was vital for the economies in all our regions was kept in operations. And yes, this year, we have also got some kind -- some of the support measures in Finland and Sweden related to the operations of cargo and in Sweden related to the workforce, but the importance of this has been lower than last year during Q2. And the top of that direct support, which we have received, we have been also able to negotiate tax payments with tax authorities and also some countries have been establishing their support measures, which are paid directly to the staff of our company. So these all numbers are on top of this EUR 11 million due to -- first half of this year. So this is a short summary of financials. And now Joonas you are still -- disclose details of our public offering.

Yes. Thank you, Margus. Just to briefly -- and very briefly sum up the ongoing public offering. On 18th of August, we published the prospectus on the offering and launched the offering. In total, there are 66,988,204 new shares on the offer at the price of EUR 0.47. And overall, this amounts to EUR 31.5 million. And in case of oversubscription, there's a possibility of extending the offer by 10% or up to EUR 34.6 million combined. The reason for the offering is to engage additional capital to comply with the commitments we have agreed with our financing banks. The offering will strengthen their capital position and capital structure of the company. And it will also further strengthen the liquidity, and that is to overcome the difficulties that have been caused by the COVID-19 pandemic. The offer is directed mainly to the existing shareholders and all the shareholders who were shareholders as of 17th of August, have a preemptive right. Which means that in the allocation, they are guaranteed to receive 1 share for each 10 shares owned at the price of EUR 0.47. And the largest shareholder, Infortar, has issued a subscription guarantee to the company in the total amount of EUR 15 million, and provided guarantee is unconditional and irrevocable. And from the timeline, as mentioned, the subscription period started on 18th of August, and it will end on 1st of September, which means that the last day of making subscriptions is 1st of September. Results will be announced on 3rd of September, and the new shares will start trading on Tallink Stock Exchange on 17th of September. And the new FDRs on Helsinki Stock Exchange will start trading on 21st of September. So that's a brief overview of the company and the offering, and we will now proceed to the questions and answers.

And the first question is, what is the plan B if this capital raising will not succeed in the amount you expect?

Yes. Thank you for the question. First of all, we are sure that we will succeed with this capital raising. But if asker wants to have the plan B, then I think that and I hope that everyone understood that we don't need this money for the liquidity issue right now. Our liquidity altogether with all named partners, more than EUR 200 million, if you take into account the Nordic Investment Bank loan and so on. So this is more for capital structure question, and this is also a question that our shareholders can invest into the company if attractive share price during this pandemic and somehow show their trust for the company, and the company can later, with our work, pay back to the investors with the higher share price, which, hopefully, in future will be then normal, like it was pre-COVID times.

The next question, what is your current base case expectation for the time when dividend payment will be restored. I understand that there could also be a negative case.

We don't want to predict it because we -- no one knows when this COVID situation will be solved. And I'm confident that also the asker don't know it, what -- how looks the future in the Baltic region, after 2 weeks or 1 month. Of course, we hope that vaccination process helps situation to recover as quickly as possible. But at the same time, we're reading the news from different countries, where the -- even the vaccinated people need to have -- who have already the first shot and that's probably also the fourth. But at the same time, we have also read the news is that the science is working to have the medicine in place already, beginning of next year. So I think it's a bit -- it's not good to predict right now when we will be back in the moment that we are able to pay the dividend. But for sure, the management and the company working to achieve it.

Next question, how do you manage the fuel price risk?

Yes, we we're working right now with the market price. So the risk is there for sure, but we're doing everything we can to optimize our fuel consumption for the vessels. So we haven't fixed fuel price right now, and we'll see what the future brings.

Next question, when will MyStar start operating?

MyStar will start operations first part of next year. There are some delays due to the COVID in the shipyard, but we are confident that MyStar will be operating when we need it. As you -- as everyone knows, the seasonality in our business has the big effect, and to us as the company is the most important that during the summer, the vessel is operating. And right now, we predict that during the second quarter, MyStar starts operations.

What about the route between Tallinn and Visby, was that a success?