AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

Good afternoon, all of those who have joined us today. Welcome to Tallink Grupp Investor Webinar introducing the financial results for the third quarter of 2024. My name is Anneli Simm, and I'm the Investor Relations Manager at Tallink, and I'm moderating today's webinar. Today, we have Margus Schults, the member of the Management Board of Tallink Grupp, who will walk you through the third quarter results and key takeaways. And the presentation will be followed by -- after the presentation, sorry, Mr. Paavo Nogene, the CEO of Tallink Grupp, will take your questions. We have already received few questions, but encourage you to ask your questions through the Q&A function. It would be nice although that if you would also identify yourself when asking the question. But I will now hand it over to Mr. Margus Schults, who will start with the presentation.

Yes. Good afternoon from my side. My name is Margus Schults, and I'm Group CFO. The key facts about Tallink Grupp have not been changed so much. We have still 14 vessels, out of which 12 are passenger vessels and 2 are cargo vessels. And out of those 12 passenger vessels, 3 are chartered, some of them short term and one long term. And then out of that 12, 2 vessels are currently in lay-up situation. What is positive? We have our loyalty program, Club One, and we see constant growth of the loyal customer members. So last time we spoke, it was 3.2 million. Now, it's already achieving 3.3 million Club One members. But the remaining facts, our hotels, restaurants and number of staff is rather stable. When you compare our results volume-wise or result-wise, it's good to remember always where our fleet is operating because we have had changes and changes affect the comparison to last year, but also fleet changes are affecting the results within Q3 2024. So very briefly, Tallinn-Helsinki, we have 2 shuttle vessels, Megastar and MyStar, and these have been operating the whole year on the same route. But then we have Victoria, which is operating also in Tallinn-Helsinki. And this vessel was rerouted for summer for June, July, August to be the second vessel in Tallinn-Stockholm line. So, Tallinn-Helsinki line numbers were a little bit declining and then Tallinn-Stockholm numbers heavily increasing. Then by end of Q3, we have again only one vessel on Tallinn-Stockholm, Baltic Queen. As said, during summer, there was 2 vessels. In Turku-Stockholm, we have not had the big changes. But since September this year, we have started a day in Stockholm concept on that route. And it means that from mid-September, there are somewhat less departures than a year ago. Helsinki-Stockholm is stable. 2 vessels operating daily on that route and the same by this departure, no changes if we compare, for instance, last year figures. And then we have one long-term charter, Star or current name, James Joyce, in Ireland and then 2 short-term charters, Galaxy and Silja Europa, which are chartered to Holland. And we have recently prolonged charter of Galaxy for next 12 months, with option to prolong it even further. So the Galaxy will stay in Holland until October 2026 -- until 2025. And then we have unfortunately 2 vessels, which are in day-up situation, Romantika and Superfast #IX. So if we go to numbers and overall, as everybody knows, economic situation is not too favorable. Estonian economy, for instance, have declined already 9 or 10 quarters in a row and also Finnish economy have not been picking up too heavily yet. We see first positive signs in there, but Q3 results are definitely -- especially cargo results are definitely affected by low and very tight economic situation. So in the Q3, we transported totally a little bit more than 1.7 million passengers, which is about 3% less than a year ago. The cargo units were about 67,000, which is about 12% less than last year. But what is very positive is that cargo revenue is increasing. So the cargo revenue was about 1% highest than the Q3 2023. So even the volumes have dropped. And our total revenue was EUR 232 million in Q3, which is basically 4% less than in Q3 '23 and reflecting the decline in the volumes. Our EBITDA for Q3 was EUR 68 million versus EUR 82 million a year ago. And this is basically reflecting the fact that we have 2 vessels in lay-up situation, and these 2 vessels were in a charter agreement -- under charter agreement a year ago. And the net profit last quarter was EUR 37 million versus EUR 49 million for a year ago. Capital expenditure is under control, so EUR 6 million during Q3, mostly related to the maintenance repair to vessels. And in our balance sheet, no major changes in assets. We have still our vessels, EUR 1.5 billion and total equity is EUR 787 million. If you look to segments in terms of sales and result, then like I mentioned, the Estonia-Sweden segment increased because we have 2 vessels in these operations and had a positive impact. But you can see that almost EUR 9 million increase in the sales did not bring anything to the bottom line, which basically tells that the economic situation is still weak. And even with increased revenues, the costs are also increasing and the bottom line was stable. Finland-Sweden, both sales-wise and result-wise, were slightly decreasing due to the less passengers and less cargo volumes. Also in Finland-Sweden, the competition have increased because Finnlines have brought 2 new vessels to Naantali-Kapellskar route. And these new vessels have much more capacity for passengers as well as cargo, so affecting the total situation when the market itself is weak. And then the segment, other, which is basically our charter vessels, declined due to the 2 agreements, which ended during the period. If we look the operational segments, then we can see that the restaurant and shops sales decreased about EUR 5.5 million. And at the same time, ticket revenue increased EUR 2.6 million. And this basically reflects a decrease in restaurants and shops, also the weak consumer confidence. It is affecting maybe the willingness to travel or frequency of travel for passengers. As I mentioned already, the number of passenger was down by 3% comparing Q3 2023. But also, I would say that the people are more careful when they make onboard shopping. So, somewhat the onboard sales was decreasing a little bit more than the volumes decreased 3.4% and then onboard sales 4.9%. But nothing dramatic, but we hope that on the other side of the coin is, of course, that once we hope that the first signs of economic recovery become more strong, then we also see the improvement, both in terms of volumes as well as spend on board. So, this is our dynamics in seasonality and now during first 9 months, we have transported 4.3 million people and cargo units are almost 240,000. As you can see that now the seasonality is less obvious than in 2019 pre-COVID times because we have less cruise vessels in operations and shuttles operation are more stable throughout the year. Therefore, Q2 and Q3 numbers are quite equal, while in 2019, these were in summer, obviously, much higher. And the revenue totally is now slightly over EUR 600 million and EBITDA EUR 149 million. And net profit, like I already mentioned, EUR 36 million. So, we are happy that already 6 months -- 6 quarters in a row, we have been producing positive quarterly net profit result. And as you can see, of course, that this has been not the case during COVID times, but also in normal operations, the seasonality was much higher. And we need to also remember that we paid dividends in Q3, EUR 0.06 per share, which affected -- and of course, from dividends, we paid also income tax. So, this affected our results in 2024 Q3 net profit in '23 and during COVID years, dividends were not paid. In consolidated income statement, like already mentioned, sales slightly down, a couple of percentage down, EUR 232 million. And the costs have been under control, kept under control. So the costs are still very stable, but due to lower sales, the operating result is less EUR 44 million. And also it affects that we have EBIDA EUR 68 million, which makes EBITDA margin basically 30%, slightly lower than in 2023 Q3, but still on a very healthy level, 30% EBITDA margin. On cash flow, it's quite stable. Less volumes means also a little bit less operating cash flow by EUR 5 million. So, EUR 55 million is our operating cash flow. Capital expenditures is already mentioned. The fixture and repair of our vessels, EUR 6 million, like it was also a year ago. And then our debt financing is a little bit eased after refinancing of the debt in December last year. We have now more put focus. Our payments in Q3 and Q4 are a little bit higher than Q1, Q2, which help us to stabilize the cash flow and reflects our seasonality. And as mentioned already, then dividends and income tax are paid -- were paid on 3rd of July this year, and it affected our cash flow by EUR 49 million. And in comparative periods, this number was 0. In our balance sheet, no major changes. We have our vessels as assets and about EUR 1.4 billion. And on liability side also, the interest-bearing liabilities have decreased during Q3 by EUR 32 million. And net debt to EBITDA is still on a healthy level below 3, 2.98. And equity ratio has increased because of the lower debt. So it's now reached already 53%. And once more, maybe a long-term picture about our loan portfolio structure. It has not changed since we made the last refinancing in December 2023. We have 3 loan agreements and the remaining maturity of those is now 4.5 years to 10 years. Some of those are fixed, and some of those are Euribor floating rate loans, all euro-denominated. And on top of that, we have also overdraft agreements in the total amount of EUR 75 million and these were not used as of the end of Q3.

Thank you, Margus. So before we start with the Q&A session, I will give the word to Mr. Paavo Nogene.

Yes. Good afternoon also from my side. We had a relatively strong quarter 3, if you take into account that, as Margus already told, 2 vessels lay-up. And what this means actually that the vessel, which is laid up generates around [ EUR 1 million ] loss monthly, 2 vessels 3 months. This actually -- this, we actually miss comparing from the last year results. But the market for the charter agreements has not been changed. It's relatively good as we just 2 days ago announced that we were able to extend the Galaxy contract. Galaxy will stay in Holland, and we're working to find good work for Romantika and Superfast IX as well. But all the years, we can't make the new records. We need to have some luck as well. Our components must come together. And if we can find job for the 2 vessels, then we are back on the track to start to make also the new records. But all in all, we are in the safe side with 9-month result, close to EUR 45 million. It's the clear sign that Tallink is able to pay the dividends also next year. Of course, fourth quarter is ongoing and let's hope that something very big is not changing, so we can keep our promise and start to pay out the dividends again on a regular basis as we did this year. Our aim is definitely to do it also next year. But Anneli will read the questions, and I'm answering as much we can answer.

Thank you, Paavo. I think some of the questions you already addressed, and I will not read those out loud again. But anyhow, I'll start with the first one. We have received also a few on the live Q&A section of the webinar. So please, if you have more questions, just write them down there. But the first question is, will there be a cruise vessel operating the Helsinki-Italian route in summer 2025?

Yes. We currently have planned that Victoria, which is operating Tallinn-Helsinki route will stay during the summer period, also Tallinn-Helsinki route and making some extra cruises to Visby as did also this year. So, we are not planning to move Victoria back to the Stockholm route for the second vessel for the summer.

What are the plans to solve the problem with the decrease in passenger flow?

As said already, Margus Schults mentioned that the economical situation in all our home markets are kind of fragile. If this will change, we definitely will see more demand. And actually, we are kind of happy already with some passenger segments, which are coming back from other continents and actually helping us to cover this decrease, which may be coming from the home markets, but it's daily basis work and our teams are working hard to have more passengers onboard.

What is the outlook for the current quarter and the upcoming winter? What are the main opportunities, risks, bottlenecks?

As you all know, we are not giving out any outlook about the current quarter. What we can say is that October, as always, having the school holiday periods, so currently, in Estonia last week, it was in Finland, last week was very strong. So if there are holiday seasons, then definitely the vessels are always full. But we need to work with all the bottlenecks and the risks, which is coming from the economy or which is coming from other countries. Export markets are still relatively low, which means that there are less goods to transport, which means that competition in the cargo side is very high. But as Margus Schults already mentioned, then we have been able to reach the same cargo revenue level with carrying less cargo, which means that our cost base is also lower. So, we have worked hard to make this change and happy to say that it has been successful at least until now. So if we also maybe coming months announce that we had less cargo than it was last year, then the other side of the coin is that we earn more from Lanemeters compared to last year.

How is consumer sentiment in Finland?

It's in all countries quite low. As Margus also said, people maybe are more careful when they're going to shop. And of course, now there are good signs that everybody is lowering and customers having more free money. But definitely, everybody are more careful making any costs, and this is natural. So, we need to live with this.

Has the pressure on wages subsided?

We have union agreements, and they are long-term agreements. So, we follow the union agreements in all our countries. And therefore, we can't say that there has been any big dramatic increases in last years. We know what we have agreed, and we know how to plan it. So, we don't see so many surprises in the wages.

What will be the main parameters you look at when deciding if it's appropriate to pay out dividend according to dividend policy?

First of all, we need to know what is our plan for next 3 years to 5 years. Are we going to plan some new investments? And currently, we don't, because one many big reason is for that, the technology is not yet there to give us a clear answer if you're going to build some new vessel, which engines, which fuel, what are the upcoming European Union or IMO new regulations or new taxes. There are so many uncertain things currently that we have decided that we take it a calm. We really want to pay dividends next year to our shareholders. And when we really see that there are clear understanding what kind vessel, what kind engine and fuel is there for making the decision to build a new vessel for the next 40 years to 50 years, then we are ready to do it. But until then, I think that the question is more asked because to understand that how big is the possibility that Tallink is going to pay the regular dividends. This is very high. So the possibility because what I just explained. We don't have in the coming years very big investment plans due to the different reasons I just explained.

With regards to restaurants and shop sales, is it possible to rank the most important core markets? Or are they all of the same importance?

Of course, the Finnish market is our main market and most important market in the context of the number of passengers and also spending onboard.

What was behind the increase in employees at the end of Q3 compared to last year Q3?