AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

All of those who have joined us today, welcome to Tallink Group Investor webinar, introducing the financial results for the second quarter of 2024. My name is Anneli Simm. I am the Investor Relations Manager at Tallink, and I am moderating today's webinar. Today, Mr. Harri Hanschmidt, the member of the Management Board of Tallink Group, will walk you through the second quarter results and key takeaways. And Mr. Paavo Nogene, the CEO of Tallink Group, will take you your questions after the presentation. Although we have already received a number of questions prior to this webinar, we encourage you to submit your questions also through the Q&A function of this webinar, and it would be also nice if you identify yourself when asking those questions. But enough said, I will now hand the microphone over to Mr. Harri Hanschmidt.

Hello. Thank you, Anneli. Good afternoon from my side. My name is Harri Hanschmidt, I'm a Board member for Tallink Group. And I will be presenting today the second quarter financial results of the 2024 financial year. As Anneli mentioned, we will go through the results first, and afterwards, you can also ask questions from our CEO, Paavo Nogene. Before we get to the results, we take a look at the key facts about Tallink, it's just good to remind and also if there are new listeners. So Tallink Group is the leading European provider of leisure and business travel and sea transportation services in the Baltic sea region. We connect the capitals in the Northern Baltic sea area. We offer overnight cruises, leisure and business travel and also RoRo cargo transportation services. We have -- we own 14 vessels and we operate 5 regular ferry routes. We also do charters. In the end of the second quarter, we had 3 vessels chartered out. Just to remind, in the end of the first quarter, we had 5 services. And if you look at the like-for-like period comparing to the year ago, then we had 7 vessels in charter. We also operate 4 hotels, 3 in Tallink and 1 in Riga. And we have 21 Burger King restaurants in the Baltics. We also have 2 stand-alone restaurants called Nok-Nok and Flavore and we're happy to say that Nok-Nok received recognition and was accepted as a new entry in the Michelin Guide. Tallink had over 5,000 employees distributed between Estonia, Finland, Germany, Sweden, Latvia and Lithuania. And we offer shopping on board, the vessels onshore and online. We have strong brands, the Tallink brand, the Silja Line brand and also our Club One membership program. We have different routes in and as we are also active in chartering then we have a slide here for keeping track where the vessels are operating if somebody -- something has been chartered out or has returned from the charter. There are some differences between the first quarter slide. For example, our cruise ferry Victoria that operates regularly between Tallinn and Helsinki route does different operation in summertime for 3 months. From 31st of June to 31st of August, it operates together on the Tallinn-Stockholm route together with Baltic Queen. Also, Victoria does 8 very popular special cruises to Gotland this year to Visby. Also, there was a name change, the vessel that we operated under the name Star was named by Irish Ferris to Oscar Wilde and now renamed James Joyce. Also in second quarter, the Superfast 9 returned and is currently in layup in Tallinn. If you look at the second quarter results, we can see that there was a drop in revenue. So the revenues amounted to altogether EUR 210 million and on year-on-year were lower by 8.5%. There are multiple reasons for that. One is that we have less vessels chartered out. Also, there was a decreased passenger volume, especially between Finland and Sweden. And also we had an impact from Easter holidays being in the first quarter this year instead of the second quarter. The same reason also affected the profitability. We ended up with a EUR 46.6 million EBITDA and a EUR 6.1 million net profit. These results were lower than last year same period. The CapEx remained about the same level. And if you look at the table to the right, so we can see that passenger numbers was down 5.8%. so we ended with positive EBITDA and positive net result lower than last year. The total assets remained about the same. Total equity decreased by almost 5%. This decrease is because we record the dividend payment in the second quarter. Interest-bearing liabilities decreased. And the net debt was 5.5% lower. So the net debt between the first and second quarter decreased altogether by EUR 32.1 million and went from EUR 581 million to EUR 549 million. And if you look at year-to-year, the leveraging situation, then the net debt decreased from EUR 665 million to EUR 549 million, so altogether, EUR 116 million. So we are clearly deleveraging. Also, net debt -- net profit was affected by dividend tax of EUR 9.2 million, that was also recorded in the second quarter of 2024. If you look at the sales by geographical results, you can see that there was, in revenues, a slight growth actually from Estonia-Finland route by EUR 4.6 million and Estonia-Sweden EUR 0.9 million but we saw lower revenues from Finland-Sweden route by EUR 11.7 million. And other that is mainly connected to the charters, we saw EUR 13.6 million lower revenues. And the result is the Estonia-Finland remained flat, Estonia-Sweden and Finland-Sweden had weaker results and the other segment also EUR 7.7 million weaker results, and we ended up at EUR 35 million. If you look at our revenue structure, then this is quite regular normal structure, we have 48% sales from restaurants and shops, 28% from ticket, 12% from cargo and 8% from the charters. So the charter pie has decreased quarter-to-quarter on those year-to-year level. If we look at the bridge, then the restaurant and shop sales decreased by EUR 6.5 million, ticket by EUR 1.2 million. There was an increase in sale of cargo transportation by EUR 1.7 million and accommodation sales were also slightly higher, income from charters dropped by EUR 13.8 million, ending up in total revenue of EUR 210 million. The dynamics of the seasonality are also now very similar in the last 3 years. The first quarter is our low season where we transport about 1.1 million passengers. The second quarter is a little bit warming up but it's not yet the high season, so we saw 1.5 million passengers. And cargo on these quarters was the same level as last year. Revenue was slightly lower but from the dynamics perspective, quite similar to last year. And EBITDA, the EUR 34 million in the first quarter, EUR 47 million in the second, so half year, we ended up with a positive EBITDA of EUR 81 million. And the dynamics to the profit, we can see that the first quarter, we had a EUR 3 million positive profit. But here, I would like to remind that we had one-off positive effect from the successful sale of the [ fedre ] Isabelle. And the second quarter where we can see this year, EUR 6 million profit. We had a negative effect because we started paying dividends, and the dividend tax went to the second quarter, so EUR 9.2 million effect for the second quarter. If you look at the consolidated income statement, sales were slightly lower than last year same quarter but cost of sales remained on the same level. Marketing and administrative costs were also on the same level. We ended up with a positive EBITDA and the EBITDA margin was 22.2%. From the cash flow, although our net profit was lower, we can see that we generated a positive cash flow of EUR 56 million. If you take the capital expenditure and advanced maintenance of the ships it was EUR 4 million. We ended up with a free cash flow of EUR 51 million. Our debt financing was EUR 21 million, and the interest on the debt was about EUR 8 million. So the change in cash was positive EUR 22 million. Our total assets remain about the same level of EUR 1.5 million. That's mainly the vessels. And the interest-bearing liabilities, as I said, are decreasing. We are successfully deleveraging. Shareholders' equity dropped that was the dividend according to the payout. And we ended up on a very healthy level of 2.7x EBITDA. We have a slide about loan portfolio structure. So we have long-term bank loans of EUR 522 million as of 30th of June 2024. And we have 3 loan agreements outstanding, 1 syndicate loan and 2 ship building loans. The maturity dates are 4.5 to 10 years, and the loans are euro-denominated fixed and Euribor floating. We have not used overdraft, so we have unused overdraft of EUR 75 million, and total interest-bearing liabilities were EUR 620 million. This is all from my side, and I will give a word to Anneli and also Paavo, who will answer the different questions we have received by e-mail and through the Teams here. Thank you very much.

Thank you, Harri. We will now start with the Q&A session. But before we start, I'll hand the microphone over to Mr. Paavo Nogene for a few welcoming words before we kick off with the Q&A.

Yes, good afternoon also from my side. Generally speaking, the quarter 2 results reflect what is happening in the economy. We have seen a decline in the economy in all our core markets, and this also having the impact to our results. Same time, as Harri already mentioned, a situation with the charter vessels and operating vessels are different from the last year quarter 2. Last year, we had 7 vessels chartered out currently free and 2 vessels without current work. So all in all, as we also calculated the dividend tax cost to the second quarter, we can say that before the dividend tax our profit was half less compared to last year. But also to remind that most of the profit Tallink Group normally generates in the third quarter. And therefore, it's most important that we are doing as well as possible in July, August and September. But I'm happy to answer the questions. Anneli will read the questions, and I will give the answers as much as we can comment some questions.

Thank you, Paavo. And I will start with the questions. The first one is regarding routes. Is Tallink planning to open new routes? And as an example, are brought routes to Poland or Germany, Denmark or Penzberg.

Yes. Thank you for questions. We are analyzing all the time different possibilities to open routes or not to open routes. Main principle is that we need to be absolutely sure that this is profitable business. Why we closed down Riga-Stockholm route when the COVID started and we haven't started or reopened the Riga-Stockholm route, example, again, is that we are not sure about profitability, and we can see signs what we analyze also from the Stockholm or example, Helsinki-Stockholm, Turku-Stockholm routes. So we take all these aspects into calculations before we announce something new. And currently, we are not planning to open any new routes, beside, of course, during the summer period as also mentioned, we're making some special summer cruises to Visby, for example, which are very successful this year. All these 8 cruises, but yes, for regular service, 365 days per year, we don't plan currently to open any new routes.

Thank you. Does Tallink plan to do some kind of collaboration or buying some companies, for example, as speaking line date?

If we see it's attractive, if the price is right, and we see that this will give some new benefit for the Tallink Group, for sure. We're already for such kind activities. We are kind of like careful with going to buy up some routes or companies, which has been quite long time closed as actually this what our competitor did but not going to comment on our competitors' work. We are open for new opportunities. But again, we need to be sure that this give us some extra asset or a benefit to Tallink Group overall.

Thank you. What route are you planning to build new ships on?

This is a big secret.

Would Tallink like to have its own cruise ship?

We have several cruise ships welcome on board, Tallinn-Stockholm, Helsinki-Stockholm and Turku-Stockholm and from 31st of August, also Tallinn-Helsinki.

Are you planning to sell any ferry from the fleet?

Again, we sold this year very successfully 1 vessel, Isabella. If the time and price is right, we are always ready to negotiate. But we don't want to sell the vessels with loss and until we don't see that we really need to sell the vessels. We definitely want to get a price, which is right in our perspective. And if such kind of moments coming, we are, again, open for different negotiations.

Please comment on the sale price of the cruise ship, Isabel?

All what we can say about the sale we said in the quarter report already after first quarter.

Is there any news about the Infortar offered to buy Tallink shares?

We don't know more than it has been published via the stock exchange. What we can say is that we know that Tallink will stay in the stock exchange in Tallinn and Helsinki. There are no plans to change it. In other hand, we are happy that our main stakeholders want to have even bigger stake in Tallink Group, which means that they believe in the company and this is a powerful message for Tallink Group and Tallink Group employees. So we understand as much as it has been told in publicly that it's more for the institutional investors who maybe want to exit, make the exit from Tallink Group, and it's not for the retail, mainly so let's see how it goes, but we are happy if our main stakeholder of share will increase, which shows the trust for the company.

Thank you. What will the Board do in the long term to increase and maintain revenues?

We work daily basis. We work hard. Actually, if we take the second quarter result and also the revenue, which was slightly down from the last year revenue. If we at the layoff vessels and their potential revenue while being in the charter, we should be in the same level. So it's not a dramatic decline. This is more reason that we received back 1 vessel from Canada, which has been there 16 years. Of course, everyone need to understand that after 1 vessel has been in charter 16 years and we'll get the notification that vessel is coming back, generally speaking, about 3 months beforehand, it takes time to find a new job for the vessel and same happened with Romantika, the company who chartered Romantika for a long-term basis went bankruptcy and our work was to save the vessel and bring her back to home. Now we're working to find a new job for both vessels and when we succeed, actually, in that case, we will see that the revenue is also back in the same level as it was last year.

What do you think of changing dividend policy and becoming first Estonian monthly dividend payer? Will this step -- would this step attract new shareholders?

I think it will be a headache for the accountant department to pay out the dividends every month. We have seen that, again, our main stakeholder Infortar actually are the first company who're paying out the dividends twice here in Estonia from this year. So -- maybe this is something Tallink should consider as well. It will benefit for the cash flow, et cetera. But I'm not so sure that to pay out the dividends monthly basis is good practice, it's too much bureaucracy and less time for real work.

Have you decided if Victoria will go back to Estonia-Finland route after August 31?

Yes. Victoria, starting Tallinn-Helsinki trips 31st of August after finishing the trips to Stockholm.

Is there any way to stay -- say how long you will keep the ship and layup before changing the focus to divestment rather than chartering?

We're working with both scenarios and also the third scenario to use the vessels ourselves in our routes. But currently, the layup is less expensive than operating vessels ourselves. So we're analyzing it all the time. We have different negotiations as well to charter out or there has been also interest to buy the vessels. But as before time and price need to be right to make the decisions. And if you're going to make such kind of decisions, we will let you all know via the stock exchange release.

Thank you. Can investments around EUR 5 million per quarter be sustainable in Q3 and Q4? Any major nonmaintenance investments that you see coming?

It is kind of sustainable, 90% from our investments are the maintenance investments to the vessels. So we see that bigger investments can come next year during the first and second quarter to the drydocking of some of our vessels. But yes, the answer that Q3 and Q4 should be kind of like sustainable this EUR 5 million per quarter.