AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

Good afternoon, dear participants. Welcome to Tallink's investor webinar introducing the financial results for the third quarter of 2023. My name is Anneli Simm. I'm the Investor Relations Manager of Tallink and will be moderating this webinar. Today, the results for the third quarter of 2023 will be presented by Margus Schults, the member of the Management Board. Paavo Nogene, the CEO of the company, will comment on the questions you have already sent to us. Or if you have not sent the questions prior to this webinar, you may post this through the chat function of this webinar. Since the time is limited, I will now hand the microphone over to Mr. Margus Schults.

Thank you, and also good afternoon from my side. My name is Margus Schults, and I'm Group CFO in Tallink. So the third quarter results. If we start about the key facts, then the key effects have not changed very much. We still have a fleet of 15 vessels on the 2 strong brands, Tallink and Silja Line. And out of that 15, 1/3 of vessels are currently chartered out. We have restarted all our ferry routes after COVID, except Riga-Stockholm route. And also, we operate now for all our 4 hotels, 3 in Tallinn and 1 in Riga. So the key numbers for 9 months of the following: our revenue are over EUR 640 million. We served 4.4 million passengers and transported almost 250,000 cargo units. Our vessels are in our balance sheet and therefore, our asset base is about EUR 1.6 billion. Our staff is currently 4,600 and we are very happy that our third strong brand ClubOne, our loyalty program, have 3.1 million members. And as we are listed in Tallinn as well as in Helsinki NASDAQ, we have almost 40,000 shareholders and Finnish Depository receipt holders. So we have now entered to the low season after Q3, which is typically our high season. But of course, this year, the high season is not so volatile or seasonal as in the past due to the fact that in 2023, we had several vessels chartered out. Normally, we have very high July and August because consumer demand is on the highest peak. But this year, we had less capacity in operations and the rest of our vessels were chartered out. So it makes the whole seasonality more stable. The economic environment, as you all know, is quite challenging starting from interest rate, geopolitical challenges, energy prices, et cetera, et cetera. Consumer confidence is on a very low level, but in spite of that, we managed to have the EBITDA in the third quarter over EUR 82 million. I'm also very glad to see that during this year, we have paid a lot of debt and our net debt to EBITDA has reached already 2.7. As it said, we have chartered out several vessels. We had 5 vessels at the end of October, chartered out, 3 vessels long term and 2 vessels short term. Happy to say that as we already announced to stock exchange, 1 short-term charter for Galaxy was extended until spring next year. Also, we had 2 vessels which returned to us -- to our disposal during Q3, vis-a-vis Romantika and Victoria. And also one of the highlights in terms of ESG is that all our hotels are now certified with Green Key ecolabel. And as we have also informed to the stock exchange in October, then also the short-term charter for Silja Europa was extended until end of the next year. So this is a summary of our vessels. On the left side, our operating vessels. We have 5 cruise vessels on -- 2 on Helsinki-Stockholm, 1, Turku-Stockholm, 1, Tallinn-Helsinki and 1, Tallinn-Stockholm. Then we have 2 short-term vessels between Helsinki and Tallinn. And then we have 2 cargo vessels between Estonia and Sweden. And then we have 5 chartered vessels Atlantic Vision is chartered is started a long time to Canada. Isabella is also chartered out for a long time, for a long period and is going to be used in Canada. And then Star or current name is Oscar Wilde is chartered to Irish Ferries and is sailing between Ireland and U.K. And then on top of that, we have 2 short-term charters, Galaxy and Silja Europa, both are located currently in Holland. And as mentioned recently, both charters were also extended. So if we go to the number, then you can see that in Q1, we had almost 1.9 million passengers, which is 6% less than last year. But last year, we had still Galaxy and Europa most of the Q3 in operation. So this minus 6% basically reflects lower capacity what we had in operations during this year. Number of cars is also in the same correlation. But of course, we see that the cargo market is going down due to economic recession, for instance, constructing materials do not move almost at all on our vessels. And therefore, the cargo units are down, the number of cargo units is down by 26%, which is proportionally more than in terms of passengers. Our costs are also decreased partly due to charters. So these vessels are not in our costs and partly also due to savings in fuel costs. So the total costs are down almost EUR 27 million, out of that EUR 20 million is coming from savings in fuel. And this all ends that we had EBITDA for third quarter, EUR 82 million, and net profit, EUR 38 million. Both figures are significantly higher than in Q3 2022. And our assets, our vessels, 1.6 million are still fair. And net debt is decreased to EUR 620 million from the beginning of year, the decrease is almost EUR 120 million. And we had also CapEx of EUR 6 million during the quarter. And these 2 main things what we had in CapEx, one was planned docking for cruise vessel Baltic Queen in September which made vessel much more energy efficient for the future. And also since Victoria started operating between Helsinki and Tallinn for 22 hours cruise in October, we needed to prepare vessel for operations. If we look the development of sales and results by segment, then you can see that, like I said, turnover has decreased about EUR 15 million from last year, and the decrease is coming from Estonia-Finland segment as well as Finland-Sweden segment, both are related to the reduction of capacity on those routes. But as it has been mentioned already, the fuel price has been positive to us comparing last same period. So even the revenues for segments have decreased and net result to revenue were positive. And other segment decreased EUR 5.2 million is reflecting very much reduction of chartered vessels. If you look operationally, then we can see that the ticket sales is very much -- same level as last year in spite of a smaller number of passengers which basically says that we have been able to keep very strong ticketer passengers. Restaurant and shop sales, onboard sales is also on a very good level, but this is correlated to the number of reduced passengers. And then cargo, as it mentioned already from -- we can see that already from spring this year, the whole market is down about 15% to 20%. And this is also here, you can see the reduction of sales by almost EUR 5 million. But on the other hand, I just remind you that cargo is only 9% of our total revenues, 46% is coming from onboard sales and then 30% -- over 30% from ticket sales. So cargo even its decline is below 10% of our total sales. As mentioned already, then our results are now less seasonal since the past. We have now carried 4.4 million passengers, number of passengers is more or less equal as in the past. And also cargo unit more or less equal as in the past, minus a reduction of the total market. And our 9 months revenues are on the level of EUR 640 million. But then when we come to the level of EBITDA then we can see that we already in 9 months exceeded the level of 90 -- 2022 full year or also exceeded EBITDA of 2019. So I think that this has been in this economic circumstances, very positive trend. And when you -- we got to the net profit levels and you can see that the seasonality is now less -- in the past, when you look at 2019 figures, then we had typically very high net profit in Q3, Q2 and Q4 made a small plus. And then Q1 due to low demand has been normally loss-making. Then we had 2.5 years of very harsh COVID time when we made basically loss both years '20 and '21 and then restarted to recover during the second half of 2022. But in this year, we have already in 9 months made EUR 77 million of net profit. And as you can see, the seasonality comparing 2019 is more stable due to the charters. I already mentioned most of the items in our income statement. So yes, sales has decreased slightly. But on the other hand, the costs are under control and have decreased as well mostly because of the fuel, but also the other costs, which have been removed from our income statement due to charters as a result is that our EBITDA is now EUR 82 million and EBITDA margin, 34%. On cash flow statement, you can see that after delivery of MyStar in 20 -- at the end of 2022, where we had high capital expenditure, we have now relatively stable and, should I say, normal capital expenditure, EUR 6 million per quarter. And we made positive free cash flow of EUR 54 million. And then we had, of course, capital debt financing down payments what we had during second quarter by EUR 39 million. And then we had also interest, which have raised slightly plus. And of course, we have now MyStar related loan in our balance sheet. So these are therefore somewhat higher than in Q3 last year. Our asset, as I mentioned, not very much changes in our balance sheet, EUR 1.6 billion, and these are our 15 vessels. What is maybe significant is that our interest-bearing liabilities have been reducing during this year significantly, and we have paid back during the year loans in the amount of almost EUR 170 million. And if you add a positive trend of EBITDA, then we have been able to reduce the net debt to EBITDA ratio from 5.4 at the end of last year to 2.7 level. And our loan portfolio is still stable. We have loans -- or long-term loans for almost EUR 600 million. The maturity is from 13 months to 11 years and all of the -- those loans are euro denominated, some of them are fixed rate, some of them are floating rate loans. And totally, we have 7 loans. And on top of that, we have overdrafts in the amount of EUR 135 million. And as our liquidity position is strong, these overdrafts were not used at the end of September this year. Thank you.

Thank you, Margus. We will now start with the Q&A session. We have received several questions in advance, but if you do have questions, please feel free to post them to the chat function. So I will read out the questions, and then Mr. Paavo Nogene will comment each question. I'll start with the first one. How has the Turku-Stockholm/Kapellskär route performed? And are you satisfied with it?

Okay. Sorry, there were some technical issue. First, I would like to thank Tallink employees. We have had 3.5 years survival causes. And I think that we have now succeeded if we take a look at the 9-month result, which is a course of record in Tallink history. And let's hope that in the fourth quarter, continuous in a stable way, so we can achieve a record net profit in Tallink history by end of the year. For the question, about the Turku-Stockholm, Turku-Kapellskär route, we -- this route doing well. We have our passenger niche. As you know, we -- our departure during the low season is much earlier than we had scheduled Stockholm. So our customers have more time on board to enjoy the cruise. And yes, we are fine with Baltic Princess results, and we are not planning any changes there in the near future. And as the second question actually is that does the company have plans to bring back the second vessel then I answered this as well that no, we don't have at the moment such plans. And we don't have also suitable vessel, we made decision to continue with 1 vessel only, and we haven't changed this, and not planning to do it in the near future at least.

The Marine Atlantic CEO recently said that Atlantic Vision will be replaced by the new build from China in their fleet. Has Tallink received official words that the charter for Atlantic Vision will not be extended. If so, will Tallink be looking to sell or charter her?

Yes, we can't comment on the charter contract negotiations [ sadly ]. So if there are any decisions coming up, we will let you know via the stock exchange release.

The Stockholm-Tallinn route seems to be doing very well. Can we expect the second ship on the route in the coming year. For example, Romantika. Can you update us in general about the plans for Romantika?

Our current results are based on the flexibility of the company and the right capacity on right routes. So at the moment, yes, we can say that Tallinn-Stockholm route doing very well with 1 vessel. If you had a second one, our estimation is that both vessels can even reach the negative result instead of positive. So no, we don't have a plan to add a second vessel at the moment. Of course, we -- we look carefully the market changes. They are coming also some extra costs for shipping industry from the beginning of 1st of January, which means that we need to apply the emission tax to our tickets. So currently, we plan to continue with 1 vessel. Regarding Romantika, there are different negotiations ongoing. We -- our first priority is to send Romantika to charter, but as said before we announce it when we have something signed and we do it via the stock exchange release.

There is another question about Romantika. Did you collect all the receivables from Romantika that was returned earlier than expected? And if there was uncollected receivables did you make a provision for this in Q3?