AS Tallink Grupp (TAL1T) Earnings Call Transcript & Summary

Good afternoon, all of those who have joined us today. Welcome to Tallink group investor webinar introducing the financial results for the fourth quarter and 12 months of 2024. My name is Anneli Simm. I'm the Investor Relations Manager at Tallink, and I will be moderating today's webinar. Today, the members of the Management Board, Mr. Harri Hanschmidt and Mr. Margus Schults, will walk you through the presentation on the operations of Tallink Q4 and 12-month financial results as well as the takeaways. After the presentation, Mr. Paavo Nogene, the CEO of Tallink Grupp, will take your questions. We have already received a few questions, but I encourage you to ask your questions through the Q&A function. It would be also nice if you would identify yourself while asking the questions. But enough said. I will now hand the microphone over to Harri.

Thank you, Anneli. Good afternoon, and thank you for listening in to the fourth quarter webinar, where we also talk about the 12-month unaudited financial results of the 2024 financial year for Tallink Grupp. My name is Harri Hanschmidt. I'm a Management Board member for Tallink. And as Anneli mentioned, I will get started with the presentation, after which Margus will continue, and you can ask questions from our CEO, Paavo, in the end. When we look at key facts about Tallink Grupp. At the end of 2024, the company is very much in a similar situation as a year ago. We own and operate 14 vessels on 5 routes. We have 12 passenger vessels and 2 cargo vessels and we offer leisure travel, short cruises, business travel and RoRo cargo transportation services throughout the Baltic Sea region on 5 regular routes. We had 3 vessels in the charter, both long and short-term charters. We have very strong brands, the Tallink brand, Silja Line brand and also our Club One members program that is growing and has achieved 3.3 million members. We also have -- we operate 4 hotels: 3 in Tallinn, 1 in Riga. And the hotels are supporting the main business as we can offer packages, spa packages, conferences, et cetera, especially in wintertime. We have 21 Burger King restaurants throughout the Baltics and also 2 on the vessels -- on the shuttle vessels, My Star and Megastar, that operate between Tallinn and Helsinki. We also have 2 stand-alone restaurants in Tallinn. We have 4,800 employees in Estonia, Finland, Germany, Sweden, Latvia and Lithuania. We offer shopping onboard the vessels, onshore and online. We have a slide where you can see all the vessels and all the routes as there are -- times changes, and we are very much focused on the core business and finding the best vessel for the best route. Also there are charters. So this is good to keep track of. This is the picture at the end of the fourth quarter. And as we also mentioned in the report, meanwhile, after the fourth quarter reporting period, our vessel, Star, returned. It was -- she was named James Joyce for the time being and now is operating under the name Star I on the Paldiski-Kapellskär route. And because of that, Regal Star and Sailor are in lay-up. So after the first quarter, this picture will be a little bit different again. So when we look at the fourth quarter revenues. Altogether, our revenue was EUR 183.5 million, quite the same level as the same period last year with a slight drop, EUR 10.2 million less or 5.3% less. We did see a small growth in revenues on the Tallinn-Helsinki route by EUR 1.8 million. And we also saw revenues -- steady revenue stream from tickets, EUR 1.4 million more than the fourth quarter last year. The consumer confidence remains low and the economic situation overall in the Nordics and Baltics is quite weak. And we can see this also from the demand on the shopping side, where we had EUR 3.8 million less revenue than last year. Also, we can see a drop in charter revenues because of a comparison of 5 vessels were in charter the year before. Now we had 3 vessels in charter at the same time. And we saw EUR 5.1 million less revenues from charter. Also the vessels, we had vessels in lay-up. This also generates some additional cost. On EBITDA side, we generated EUR 25.7 million of EBITDA, and that's EUR 11 million less in the last year. And we ended up with a small net loss of EUR 5.2 million for the fourth quarter. And this is also a weaker result than last year. The capital expenditure remained the same level, EUR 5.9 million, and was mainly used for maintenance and repair of the vessels. On the right side, this is now for the annual result. We can see that our interest-bearing liabilities dropped by EUR 92.9 million. So we are deleveraging and paid back loan. And also, interest on loan and net debt also went down from EUR 607 million to EUR 537 million or 11.5%. If you look at the sales and the results by geographical segments. We can see on the bridge chart that we had EUR 1.8 million more revenue from the Estonia-Finland route, but Estonia-Sweden and Finland-Sweden saw a slight decline. And other is mainly charter-related revenues, it was down by EUR 8.6 million. Also, the segment result reflects the same image with the difference, Estonia-Finland had a slight decrease as well attributed to the onboard spending. When we look at the sales by operational segments. This is quite a familiar image of the fourth quarter revenue. 51% of our revenues come from restaurants and shop sales, 26% come from ticket sales, 11% from cargo and 8% from charter. We already mentioned that the restaurant shop sales decreased EUR 3.8 million, but we did see a slight raise in ticket sales by EUR 1.4 million. Cargo transportation was also a little bit weaker, EUR 1.7 million decrease. Accommodation sales were around the same level as last year and income from charter dropped by EUR 5.1 million. If you look at the full year revenue. Then it was a total of EUR 785.8 million, EUR 10.2 million down from last year, but we can say it's pretty much the same level. We did see higher revenue on the Estonia-Sweden route, but this is because we also had Victoria doing trips in summertime together with Baltic Queen. So it's not exactly a like-for-like period. And we have said publicly that this year, our customers can enjoy the services of Victoria on the Tallinn-Helsinki route in the summertime. There was a strong result in accommodation sales, higher EUR 1.3 million. And ticket sales were higher by EUR 7.2 million versus last year. We saw a decrease in net finance costs as we are deleveraging, and also the interest costs were slightly lower. So it was EUR 7.3 million less for them compared to the last year. EBITDA was altogether EUR 175.2 million and we ended up with EUR 40.3 million net profit. CapEx for the whole year was EUR 22.4 million. If you look at the dynamics, then we can see that the 3 last years after the pandemic have been quite similar. We can observe that the first and second -- or the first and fourth quarter are our weakest quarters and the summer seasonality starts in the second quarter and the main quarter is the third quarter. We see more passengers compared to the first and fourth quarter, also higher revenues and maybe the most on the EBITDA or the profitability level. We can see the stronger results especially in the third quarter. If you look at, for example, on the EBITDA level comparison to the 2019 year, we can see a very strong first quarter. But this is one-off positive deal from the sale of the vessel, Isabelle, that is affecting this quarter. On the net profit level, the picture is the same. We do small profit in the first and second quarter, most of the profit is made in third quarter, and fourth quarter was slightly negative. This is all from my side. I will give word to my colleague, Margus Schults, who will continue with the presentation. Thank you very much.

Thank you, Harri. Yes. Good afternoon also from my side. My name is Margus Schults, and I'm Group Chief Financial Officer. And I would like to provide further some slides with numbers regarding 2024 and Q4 '24 results. So like already mentioned, the total sales in '24 was EUR 786 million, out of which EUR 184 million came during the last quarter of the year. This is down about 6% from the year before and basically reflecting very much economic environment. We have uncertainty of passengers is on higher levels than in the past. So the traveling willingness is definitely lower. The cargo volumes are lower. But also, it reflects the fact that we have now less chartered vessels than in 2023. So basically, out of this EUR 786 million total revenue, roughly 80% is coming from passengers, but 10% is coming from cargo, which is very much on the low levels at the moment. And the final 10% is coming from our charter business and other minor revenues. The cost of sales has been stable comparing year-to-year and also the last quarter. Basically, it reflects the fact that we have now some idle vessels, 2 idle vessels almost during the whole year and during the whole last quarter. And of course, idle cost -- idle vessels also create costs for staffing and also port fees and fuel. So this is basically a reflection that although sales has dropped 6%, the costs, what we have had, have been stable. And like already mentioned, our full year EBITDA was EUR 175 million and last quarter EBITDA was EUR 26 million. So like Harri showed, this is a typical low season result. We're trying to be on plus/minus 0. This year, our net profit was minus EUR 5 million. But I would say that without these 2 idle vessels, we would reach definitely breakthrough or even small plus also in the last quarter. What is positive is that the EBITDA margin is still above 20% for full 2024. So there is drop only 1.5% comparing EBITDA margin in 2023. And this 40% -- sorry, EUR 40 million profit in 2024 basically means per share, we had a profit EUR 0.054. The breakdown of cost is very much similar. Our 3 biggest cost items, one is of course cost of goods, so the stuff we are selling onboard representing 22% of the costs. And it's basically 4% lower than year before, reflecting the fact that we have had less passengers onboard. The second largest cost item is our staff, about 19% or EUR 142 million in 2024. And like I already mentioned, the higher staff cost is very much related to the fact that we have now Victoria operating fully in our own fleet, so this is staff on this vessel, and also the fact that we have had a couple of idle vessels which should also be manned during their stay in the port. And then the third largest cost item is our fuel. So basically last year, it was EUR 96 million, a little bit down or almost flat comparing the year before, reflecting that, of course, gasoline costs have been going down during the year. But unfortunately, gas LNG prices have gone up. Depreciation is very much on the same level, about EUR 100 million per year. But what is positive also for us that the financing costs have been going down 20% to EUR 28 million last year. And it's basically very much reflecting that we have quite aggressive loan downpayment schedule. We pay almost EUR 90 million principal every year, also last year. But also it reflects the fact that Euribor has been going down during this year. On the cash flow side. Our operating cash flow was EUR 158 million during the whole year, out of which EUR 31 million came during the last quarter. Our capital expenditure, EUR 22 million, is very much related to different technical works and also upgrading of passenger facilities on our different vessels. But of course, this EUR 22 million also includes different IT development costs, what we have had during the whole year. Asset disposal, EUR 25 million, basically reflects the sales of Isabelle in January 2024. And yes, like I mentioned, debt financing is that we paid last year. Net effect is EUR 106 million. About EUR 86 million is principal payment. And we paid also last year, first time after COVID, dividends. So this is affecting comparison to '23 when we did not pay dividends. So dividends payment plus related taxes were about EUR 50 million, 2024. And like mentioned already then, in '23, this row was 0. On total assets. We have -- our asset base is still our vessels. So it's EUR 1.4 billion, almost EUR 1.5 billion. We amortized, like I already mentioned, the asset with speed, about EUR 98 million per year. Mostly this is related to vessels. But of course, like already shown in the previous slides, we also had EUR 22 million new investments done to the vessels, which had some depreciation. And on the liability side, we have a very strong balance sheet. More than 50% in our balance sheet is shareholders' equity. And the loans' downpayment is, like I mentioned already, quite rapid. So now the loan amount is basically -- the total interest-bearing liabilities, EUR 980 million, so below the value of our equity. And net debt-to-EBITDA was at the end of year quite healthy, 3.07x. And we predict that since we are going to pay further down loan payments, and of course, the ratio should also start to decline further. And like I mentioned already, equity-to-asset ratio, 53%. Quite a good level. Our loan portfolio is presented on this slide. Basically, we restructured the loan portfolio in December 2023. So it has been now stable for a little bit more than 1 year. We removed -- in 2023, we agreed with lenders removal of all restrictions, what we had due to the COVID times. And also we removed from overdrafts, EUR 60 million extra overdrafts, what we had as a liquidity buffer for COVID times. So this loan portfolio now very much reflects normal operations. We restructured the loan -- different loan agreements into one. So currently, we have now 3 bank loans outstanding, 1 syndicated loan and 2 shipbuilding loans for Megastar and My Star. And the remaining maturity of those is still 4% to 10%. Some of the loans are fixed-rate loans and some of those loans are Euribor-based loans. And last but not least, we have now agreed with our Supervisory Board that also this year, we propose to shareholders meeting a dividend of EUR 0.06 per share. So this will be very much in line with what we had last year. Our dividend policy says that we should pay at least EUR 0.05 per share if economic conditions allow that. But since already mentioned, COVID years have been quite severe for everyone, for company, for staff but also for our shareholders, we want to continue at least in '25 with the same line as we did last year and proposed a EUR 0.06 dividend. Thank you.

Thank you, Harri and Margus. So before we kick off the Q&A session, Mr. Paavo Nogene will say a few words.

Yes. Good afternoon also from my side. As my colleagues already explained in more detail, but we had kind of like a tough year, as all the last 5 years. But we found a way how to adapt and ended the year still with a very solid EBITDA, EUR 175 million, and net profit of EUR 40 million. As you and we all know, the economical environment has been very challenging. So I'm proud of my 5,000 colleagues and employees to reach this result in these circumstances. And definitely, the first quarter of the year '25 is challenging as well. We know that what's going on in geopolitical situation and the economy is very fragile in our home markets, Estonia, Finland and Sweden. But definitely, all the team makes everything possible to make the best results out of 2025 as well.

Okay. We have received a few questions. And the first one goes like, could you please elaborate on your thinking regarding dividend payouts? Are you trying to keep it stable around the policy, EUR 0.05? Or is it more like depending on an individual year's results, i.e., not so much emphasis is put on keeping the dividend stable from an absolute euro perspective?

Yes. Thank you for the question. Today's news, EUR 0.06 dividend payment, is possible due to our strong capitalization, rapid loan repayment and the fact that we are not able to make very large investment decisions in the coming years because we don't know what technology or fuel the new ships will be using for the next, example, 40 years. Therefore, we were able to announce the EUR 0.06 payment. But generally, we tend to adhere the dividend policy unless extraordinary events occur.

Thank you. There is a question from one person which is comprised of several questions. So I'll go one by one. Could you tell a bit more regarding your plans for the Estonia-Sweden routes? And the question is, will Star be marked towards passengers in a different way than former Kapellskär vessels?

Yes. Star definitely carry more passengers by car or bus because the ship design allows it, carrying capacity. And the passenger capacity is definitely bigger compared to Regal Star and Sailor.

Thank you. Will there be 1, 2 or no ships at Stockholm-Mariehamn-Tallinn routes?

As announced, we continue with one vessel in Tallinn-Mariehamn-Stockholm route, and we don't plan to make changes to this during this year.

Is there any advantage using the tax-free options on Estonia your routes? Would you even consider skipping Åland on this route?

Just very shortly, there are no plans to change this.

Thank you. Would it be an option to have Star going via Mariehamn to Tallinn?

Probably no. We don't have time for that. Because if we want to have the 2 daily departures, one from Kapellskär and one from Paldiski in same day, morning and the evening, then we don't have just time to go through the Mariehamn. And most probably, economically it's also kind of difficult because the cargo prices are under the pressure. And if you need to make some extra 4-hour trip, 2 plus 2 hours, then it's -- probably we lose, in competition.

Thank you. Is the proposed dividend of EUR 0.06 a reflection of your confidence in FY '25 expected results? And what are your main targets you desire to achieve this year?

The EUR 0.06 is a reflection of the 2024. And as I explained, a reflection that our debt is going to pay down quite rapidly and very fast and as well as we don't plan very extra-large investments due to the lock of the technology. So let's see how the '25 is going. But currently, we make the decision based on the results '24 and acknowledge what we are going to do in our investments in coming 2 or 3 years.

Thank you. The next question repeats the previous, but I'll still read it out. What is the source of the optimism regarding dividend proposal? Do you expect very good results in 2025 or some more vessel sales?

We are a bit overcapitalized, and there are ways how to reduce it to make the capital payment to the shareholders or the dividend. We decided to improve the dividend.

Thank you. There is one more. Yes, one second. Could you give any color on how should we think about your plans this year with the vessels in lay-up?

We're working hard. Generally, the market last year was very calm. Actually, if you take a look how many vessels were sold last year and chartered, it was significantly low. We have seen now some more signs that this year will be more active. We have in pipeline 15 different negotiations. Negotiations sometimes will result with the contract, sometimes not. But definitely, we work hard to find alternative work. And regarding the cargo vessels, we generally are ready to sell them. But of course, it always depends on the -- what kind of solution and offer we will receive.

Thank you. Are there plans for the Southern Finland traffic, Turku-Stockholm route that would affect the operating ships or add or take out operations?

No, we don't see any change in Turku-Stockholm route currently.

Also the aging ships on Helsinki-Stockholm, what is being done to keep passengers using them and making them economical to use?

During first quarter of '25, we have extensive dockings, and Silja Serenade actually just came back from the docking. We invested a lot of money to improve the energy efficiency, improve the technology side and also improve the cabin bathrooms quite significantly. So Silja Serenade and Silja Symphony are the unique vessels on Helsinki-Stockholm route, very loved ones by the Finns and Swedes. So we have definitely a competitive advantage there compared of the vessels our competitor is using. So we feel strong there. But saying that, of course, we see that there are overcapacity on that route as it was Turku-Stockholm route. So let's see how this improves, but we're definitely planning to continue with Silja Serenade, Silja Symphony because they are meant for that route and very well known for the Finns and Swedes.

Thank you. City Council of Riga has been trying to get very ferry service back to the city. Has Tallink been on conversations and plan to start operations to Riga or some other routes with lay-up vessels?

Yes, we are in regular contact with the authorities from Latvia. And I visited the Minister of Transport just a few weeks ago and they have been here. We are in discussions but there are some assumptions which need to realize. First of all, the war in Ukraine need to come to an end. And then we need to see that it's financially and economically or financially reasonable to open the Riga-Stockholm route. Currently, it's not profitable. And yes, let's see when the war is going to end and what kind of circumstances, and then we can make the decision. We are not planning to open that route this year. So if there are going to happen something, then it's longer -- not 2025, but can happen somewhere in the future.

And that was the last question today. We thank everybody for attending and for the questions asked. Have a good rest of the day, and we expect you back for our first quarter results published in April this year. And yes, thank you, and goodbye.