AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

Who will walk you through the Q1 results. [Operator Instructions]. I will now hand the microphone over to Mr. Harry Hanschmidt.

Thank you, Anneli. Hello from my side. My name is Harri Hanschmidt, a Management Board member for Italian Group First, we will go over the current state of Tallink in the end of the first quarter, that is our low season. So Tallink Group had 4 vessels that it owns and operates as we sold one of the vessels, [indiscernible] in January. As at the end of the quarter, the group operated altogether reported including 2 shutters, 2 cargo vessels, 5 cruises as well as 4 vessels that were chartered out to long-term charters and 2 vessels on short-term charters and with 1 vessel late up. We operate these vessels on 5 regular routes. There are no changes about that. We have 3.2 million club 1 members through the Tallink Club 1 program, and this number is increasing. We also operate 4 hotels, 3 in Tallink and one in Riga. We have 21 Burger King restaurants throughout the Baltics also too on the vessels, Masterland Megastar. We have 2 stand-alone restaurants in Tallink. Tallink has over 4,900 employees from 44 nationalities and over 3,000 of the employees were going to see. We offer shopping on port, onshore, and online. We have very strong brands, Tallink and Cellular in trend as well as the Club 1 program loyalty program. We have a slide about fleet by routes there are -- the regular routes don't change, incentives usually don't change. But here, I will go over to better keep track of the charter vessels and when some of the charters are ending. So SiliaEurope is Rotterdam until 2024. Alex 1 is in Amsterdam until October 24. Romantic is still in layup and Atlantic Cision has been in Canada from 2008 and now is returning and is currently in Denmark, Drydock and waiting great delivery to Tallink in May. And Star is chartered out to Irish Ferris under the name of Oskari it operates between Ireland and U.K. In the first quarter revenues, we can see that there was a slight increase in the number of passengers by 5%. So we ended up with over 1.1 million passengers. The cargo units were down. It is a very challenging economic environment. And the number of passenger cars were slightly down as well. We ended up with a minus 6.3% in revenues compared to the last year same quarter. And gross profit was down. EBITDA was up by 27.2%. This includes a one-off sale of [ Isabel ]. EBIT was up as well, and we ended with a net result for the period of EUR 2.6 million. The capital expenditure was EUR 6.3 million entering the maintenance CapEx for this period. We have about EUR 1.5 billion for the vessels. This is mainly the vessels. The equity was EUR 788 million. Interest-bearing liabilities are decreasing or decreased by 3% to EUR 630 million, and net debt decreased by 4.3% to EUR 581 million. There were less charters compared to last year same period. Last year, we had 6 charters, this year 4, but we saw a strong result in the ticket sale segment. If you look at the results by geographical segment in Estonia. Finland had strong sales by 7.9% positive with SEK 7.9 million, but it was not enough to cover Stoneweden and Finland, Sweden, negative sales, and also there was less income from charters. This is the portion of the other heads. And the results, we can see the same dynamics, there was a positive result from the stern Finland, but a negative result from Stone Sweden, Finland, Sweden, and other segments. And if you look at the revenue structure for the first quarter, it's very typical for our revenues to be 47% from restaurants and shop sales, 25% from ticket sales, 14% from cargo sales, and charters amounted to 11%, accommodation, 1% and some other revenues. The situation is quite similar to the first quarter last year. The restaurant and subsets were on the same level. Ticket sales were strong. There was a drop in sales of cargo transportation, accommodation sales were the same and there were less sales from the charter operation. Also, the dynamics of the seasonality, it's quite typical first quarter. There were a little bit more passengers than last year. Last year, we had 1 million passengers. Now it's 1.1 million. Cargo numbers were about the same level with 85,000 units. The revenue was EUR 160 million, and EBITDA was slightly stronger, but because of the one-off sale event Isabel. And the dynamics of the net profit seasonality, we can see that we started the year with a positive net profit. I will give now to my colleague, Margus Schults, who will continue with the presentation. Thank you from my side.

Good afternoon also from my side. My name is Margus Schults. I'm Group CFO, and I will walk through a little bit more detailed numbers on numbers in comparison to last year's respective numbers. So if we start from sales, like I already mentioned, our sales in Q1 was EUR 160 million, which is 6% less than in Q1 '23, and the numbers are not fully comparable because in Q1 '23, we had Star vessel operating between Helsinki and Titan with more departures and now Star vessel is in charter, and we have a Victoria vessel, which was 1 year ago in Charter, but now operating a 22-hour screws vessel between Helsing and Thailand. So the numbers are not fully comparable because the capacity is somewhat different. Like I already mentioned, the passenger side was still strong. We had good entry levels, no net ticket revenue levels. And also, we did not see any impact of economic recession on onboard purchases. So passenger side per passenger income is very strong as it was also last year. But on the cargo side, last year, at least the beginning of Q1 was better than this year, and we can see that from spring '23, the cargo markets came down around 15% to 20%, and of course, affecting sales in a negative way. And also, we have now in Q1 '24 less charters. So this is also resulting that we have EUR 11 million less revenues. On cost side, we have cost of sales, which is basically a little bit higher because of the higher number of passengers. Normally, the cost of sales very much correlates with a number of passengers. But the administrative costs and marketing costs are kept in an efficient level. So there have been no changes since last quarter. And then we have other operating items, which include also the extraordinary income from sales of Isabel. So we ended up a quarter with EUR 34 million EBITDA, which is 27% better than last year. And we ended up first time in the history of tiling with EUR 3 million profit in Q1 versus last day it was minus EUR 5 million. Two, part of that EUR 3 million profit is still a one-off income from disposal of Isabela. But if even you exclude other operating income from the result, we are still running very strongly comparing our normal prior to COVID. So I can say that even very broadly is that with 40% less passengers and 10% lower revenues, we produce better results than 4 years ago. On cash flow, we generated operating cash flow plus EUR 17 million, which is less than last year. And the reason is obvious. Again, repeating that we had -- even we had the same number of passengers. We lost revenues from some charters, and we had some more costs comparing last year because of idle standing Romantica and also Victoria made a weaker result because typical low season operating vessel mix, lower result comparing to the vessel, which -- the same vessel, which is in charter. The $6 million of capital expenditures is related to our ships. We had a couple of dockings during Q1. And then like I said, sales of Isabel generated EUR 24 million of cash flow. So it's an asset disposal. And changing cash is final SEK 7 billion. So we have still a very strong liquidity position. And comparing 2019 situation, like it has been said several times, we have a more stable cash flow because of the chartering. The balance sheet is very much so to say, it's the same as it has been. We have some assets which are, of course, depreciated gradually. And therefore, our total assets have a little bit decreased. As mentioned already, we had refinancing in the end of last year. And our position of cash is still very strong. So we have $49 million of cash. And net debt to EBITDA has decreased. So 15 months ago, 5 quarters ago, it was 5.4%. And at the end of last year, it was 2.8%, and now it has fallen to 2.6 level. And also as loan burden is decreasing, we have, of course, an increase in our equation, which has now reached 51%. Our loan portfolio after refinancing last year consists of basically 3 loans out of which one is syndicated loan and two, our shipbuilding loans for iStar and Megastar, the maturity of those loans is between 5 and 11 years. And the loans are partly eroded -- they are all euro-dominated but partly fixed interest rate and partly Euribor floating interest rate. And as we refinance it, the loan portfolio last year, we decreased our overdrafts from EUR 135 million to current EUR 75 million levels. So basically EUR 60 million extra overdraft, which was granted in COVID years made void during refinancing exercise. And the EUR 75 million of overplus was not used at the end of the first quarter. So our total interest-bearing liabilities are now on the level of EUR 630 million. And finally, we have proposed to shareholders meeting, which will be held on in May 7, EUR 6 -- sorry, EUR 0.06 per share dividend, which made dividend yield on the level of 8.2%. And you can see that the dividend yield has been variating between 3% and 12% over the years. Then we had 4 COVID years where we did not pay dividends [indiscernible], I think we are on the top payer of dividends in Helsinki Stock Exchange with the field that now after 4 years of waiting, shareholders can get, again, returns from shareholding. Thank you.

Thank you, Harri and Margus. We will now start with the Q&A session to keep the process simple, I will read the questions received and Mr. Paavo will be addressing these questions.

Also from my side. I just want to say that we had kind of good first quarter. The economical situation is very difficult. Export markets are decreasing. And therefore, it's very important that we have the right capacity to generate routes. And this has been possible due to the fact that we are still able to charter out our vessels. So the combination, very strong ticket revenue on our core routes, good charter revenues, and sale of Isabella achieved the result that at least in the last 10 or 13 years, Tallink has been in the positive side in the first quarter. So the net profit, EUR 2.6 million was a good result. But yes, we have some questions, and Anneli will read the question and I'm trying to answer.

Thank you, Paavo. So the first question, how much of the other operating income was due to the sale of Isabel?

Yes, we're not going to give out more details than it's written in the report. The contract between the buyer and thus the confidential. So everything you can calculate yourself from the report.

What were the number of vessel calls in 2023? And what is the planned number for 2024?

In 2023, we had 7,183 trips and 2024 will come kind of like similar, maybe a bit more trips, but it all depends on the demand. So it's not maybe very correct to say today what will be the exact number of the trips 2024 because we are monitoring the demand and are very flexible with potential changes in our traffic.

What was the fuel price impact in Q1? And have you hedged any fuel consumption for 2024?

We haven't hedged the gas oil. We have some fixed prices for LNG to guarantee that we have the supply for LNG and the supply from countries in Norway or United States. So we are not using the Russian LNG. This has been important to us from beginning of the war started. Fuel is only one part of this number you're seeking. It's more a question that how expensive is the transport of the fuel because fuel is coming from different countries, not anymore from nearby. So this combination of the price of fuel, price of transporting, and bunkering the vessels.

Are there any one-off major investment plans for 2024?

Currently, we're focusing to recover our core routes. We're focusing to have the charter agreements for our vessels, paying back loans to reduce the debt, and focusing to stabilize the dividend payment, so we can keep kind of like sustainable dividends for the investors for coming years.

A question about Cabaca Sweden. Will you go on with Baltic Prince's winter season and starting which date?

Right now, we're planning, yes, mid of August. Go back to the winter season to [indiscernible], we're monitoring developments and reacting if needed.

Have you considered starting other routes from Kopelskar? There is a growing demand for a short to Mariano during the summer season.

Yes, this is the business secret that we are considering or not. So we are not going to talk about that, but it's not very sustainable to open the route just for the summer season. So vessels need to operate throughout the year. And so yes, we don't have a plan to come for the summer season to operate from Marianne summer routes.

Do you see a trend regarding passengers traveling from A to B compared to passengers just going on a cruise?

Market has definitely changed. There are examples, if you take just turn Finland, profit times and the gray economic crises, there were many people worked in Finland. Now this has been reduced. So the market is changing all the time. But at the same time, I think that we have a sustainable number of passengers. It has been kind of flag stable last year and now also the first months of this year there are still demand for both to go from May to be or to cruise. And I think this cruising in the politics is very natural for fins and the store. So everyone, welcome on board of our vessels.

The question is about [indiscernible], does the vessel have a future in Tallink?

Yes, of course, we have a future. Currently, we're focusing to find a new charter. [indiscernible] came back unexpectedly from Charter due to the bankruptcy of the operator who chartered them. So that's why it has been taken also more time because it was planned to be chartered out 3 plus 2 years. So yes, it has been taking time, but we're working on it, and we definitely see that romantics part of our fleet.

What will happen to Galaxy 1 after the end of the charter? Do you have any plans for it?

We have always plans at the bottom, they can talk when it's at this moment is coming. Currently, she is sorted out. And yes, we hope to keep there longer than announced at the moment.

No questions from the chat function. Did you book any charter income from Isabel in Q1 before the disposal? And can you specify the size?

No, we can't specify the size.

What is your current Polycon charter vessel fleet? Are you planning to hold on -- with the ships and you try to run them as a permanent business line? Or do you actually use chartering as an interim measure to increase profit and reduce costs? But in reality, you plan to sell all currently chartered vessels in the future.

Our business model has changed during the last years when we see that we don't have enough demand on our core routes. We need to find alternate work for vessels and chartering the vessels out has proven that it has been a good reason. We haven't made any more decisions to sell the vessels. As you know, Isabela we sold just in January. We have one vessel more, which have the purchase option in the agreement. This is the former Star or Oscar Wild operating under the Irish varies. So other vessels were operating at the moment ourselves in our core routes or chartering them mold.

There is another question about Romantica, but that was already answered by Mr. Babanogana earlier. So it seems that we have now run out of questions and since there are no more, we thank everybody for attending. And I wish you all a good rest of the day, enjoy the upcoming weekend, and we'll see you again on July 25, when we have our second quarter results within our plans.

And if someone wants to ask the questions face-to-face, the AGM taking place 7th of May, so you are welcome to the AGM.